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PLEASE SEE IMPORTANT DISCLOSURES STARTING ON PAGE 19
Cempra, Inc.
Initiating with a Buy - Solithromycin Data, Filings Key Drivers
Cempra is a promising small-cap opportunity in the antibiotics space, in our view. This segment of the market is experiencing a resurgence of activity due to a lifting cloud of regulatory uncertainty as well as a prolonged lack of interest on the part of larger pharmaceutical companies.
We believe Cempra’s lead program, solithromycin, could become the first new macrolide-type antibiotic to reach the market in 10 years. Cempra is currently conducting a phase III program of oral solithromycin in community acquired bacterial pneumonia (CABP). Data from this study are expected in 1H14. A second phase III trial will use the intravenous formulation of solithromycin for an initial dosing period, followed by a step-down to oral dosing. If successful, we believe Cempra will have a dataset potentially enabling the introduction of the first IV-to-oral option for CABP in 20 years.
In our view, solithromycin has a differentiated profile compared with other antibiotics used to treat CABP. The potential availability of both IV and oral formulations, efficacy against macrolide-resistant pneumococcal strains, and potentially improved safety and tolerability combine to create a compelling, differentiated treatment option for this difficult indication. We model a potential product launch in 2016, with U.S. sales ramping to $397M in 2020.
Cempra’s second program, Taksta, is currently in a phase II trial in prosthetic joint infections, with results expected by year-end. While we expect investors to focus on solithromycin as the company’s primary value proposition, we see Taksta as having the potential to generate meaningful incremental upside.
Initiating with a Buy rating and a $12 target, based on a 30x multiple of our probability-adjusted 2019 EPS estimate of $0.94, discounted six years at 15%. Our rating is based on our view that progress with solithromycin over the next 18 months should lead to a share performance that exceeds the broader sector.
FYE – Dec. 2012A 2013E 2014E
EPS Current Previous Current Previous Current
1Q -$0.26A NA -$0.44E NA -$0.64E
2Q -$0.45A NA -$0.43E NA -$0.42E
3Q -$0.24A NA -$0.61E NA -$0.38E
4Q -$0.27A NA -$0.66E NA -$0.24E
Year -$1.23A NA -$2.16E NA -$1.64E
P/E -5.4x -3.1x -4.1x
Mean EPS Estimate -$1.25 -$1.43 -$1.65
Revenue (mil.) Current Previous Current Previous Current
1Q NA NA NA NA NA
2Q NA NA NA NA NA
3Q NA NA NA NA NA
4Q NA NA NA NA NA
Year NA NA NA NA NA
EV/EBITDA NA NA NA
Operating Margin NA NA NA NA NA
March 21, 2013
CEMP Price (Mar. 20, 2013) $6.70
Mkt. Cap. (mil.) $166.9
Biotechnology
Rating: Buy
Previous: NA Price Target: $12.00
Previous: NA Risk Rank: High
Previous: NA Sector Rating: Market Weight
Brian Lian, Ph.D. 212-319-3728
Market Data: 52-Week Range $9.56-$5.26 Shares Out. (mil.) 24.9 Float (mil.) 11.7 Avg. Daily Vol. (000) 23 Dividend/Yield NA/NA
Financial Highlights: Long-Term Debt (mil.) $7.6 Debt/Cap. 0.1% Debt/EBITDA NA ROE NA Book Value/Share $2.32 Free Cash Flow/Share NA Net Cash/Share $2.82 Shareholders' Equity (mil.) $57.8 Est. 5-Year EPS Growth NA Convertible No
Key Indices
EPS Est. Changes 2013 2014 NA NA NA NA NA NA NA NA NA
2
Comments
Investment Thesis
We are initiating coverage of Cempra with a Buy rating and a $12 price target. We believe Cempra is a promising
small-cap opportunity in the antibiotics space, a segment of the market in which we see a resurgence of activity due
to a lifting cloud of regulatory uncertainty as well as a prolonged lack of interest on the part of larger pharmaceutical
companies. Cempra is developing antibiotic drug candidates for respiratory tract and bone infections. The
company’s lead program is solithromycin, a novel ketolide antibiotic in phase III development for community
acquired bacterial pneumonia (CABP). A second pipeline program, Taksta, is an oral formulation of fusidic acid in
phase II for prosthetic joint infections. Both programs represent differentiated approaches to their respective
indications. As enthusiasm returns to the antibiotics space, we view companies such as Cempra as well-positioned
to benefit from increased interest in the investor and drug development communities. In our view, progress with
solithromycin over the next several quarters could lead to a share performance that exceeds the broader Nasdaq
Biotechnology Index. The following table highlights the company’s current product pipeline.
Cempra Holdings – Product Pipeline
Source: Cempra Inc. and SunTrust Robinson Humphrey
Our Buy rating is based primarily on our assessment of the opportunity for solithromycin in CABP. We believe
solithromycin could become the first new macrolide-type antibiotic to reach the market in 10 years. Based on
clinician acceptance of macrolides, and solithromycin’s excellent preliminary safety and efficacy profile, we think the
market will embrace its use in CABP and potentially other indications. The CABP market, comprising approximately
four to five million patients per year, represents a significant opportunity, large enough to support multiple agents.
The last novel macrolide, telithromycin, approved in 2004, experienced rapid uptake, with sales of approximately
$190M in its first full year of sales, despite the presence of generic alternatives. Thus, solithromycin’s potentially
improved safety and efficacy profile could lead to a strong initial sales ramp, in our view. We currently estimate a
2016 market entry and 2019 U.S. revenue of approximately $310M. In addition, we believe Taksta could generate
incremental revenue from the osteomyelitis setting. We estimate 2019 Taksta sales of approximately $20M.
Cempra is currently conducting a phase III program of oral solithromycin in CABP. The first of two planned trials
will enroll up to 800 patients worldwide, will evaluate solithromycin vs. the fluoroquinolone moxifloxacin, and will
utilize a trial design in accordance with recent recommendations from the FDA’s Anti-Infective Drugs Advisory
Committee. The primary endpoint will be non-inferiority at 72 hours on improvement in two of four symptoms,
with no worsening or new symptoms, with a 10% margin. Data from this study are expected in 1H14. A second
phase III trial will utilize the intravenous formulation of solithromycin for an initial dosing period, followed by a step-
down to oral dosing. If successful, we believe Cempra will have a dataset potentially enabling the introduction of
the first IV-to-oral option for CABP in 20 years.
Product Indication Status
Solithromycin (CEM-101) - Oral Community-Acquired Bacterial Pneumonia (CABP) Phase III
Solithromycin (CEM-101) - Intravenous Community-Acquired Bacterial Pneumonia (CABP) Phase I complete
Solithromycin (CEM-101) - Oral Urethritis Phase II complete
Taksta (Fusidic Acid) - Oral Chronic Prosthetic Joint Infections Phase II
3
Cempra previously completed a successful phase II trial comparing solithromycin to the fluoroquinolone
levofloxacin in CABP, which demonstrated non-inferiority on test of cure at 5 to 10 days post-therapy. In addition,
the trial demonstrated success using the phase III criteria described above, with clinical response rates of 72% for
solithromycin vs. 71% for levofloxacin in the intent-to-treat population. Solithromycin’s side effect profile suggested
improved tolerability compared with levofloxacin as well. In our view, the efficacy profile establishes a precedent
for the expected phase III endpoints, and tolerability appears potentially superior to established therapy for CABP.
While relatively limited in size (n=132), the data bode well, we believe, for the phase III program.
In our view, solithromycin has a differentiated profile compared with other antibiotics used to treat CABP. The
potential availability of both IV and oral formulations provides flexibility for those physicians seeking to maintain
treatment continuity for hospitalized patients on discharge. Few other CABP therapies have this dosing flexibility.
As mentioned above, phase II data have demonstrated similar efficacy to levofloxacin, a common CABP therapy.
However, Cempra has an important mechanistic advantage by virtue of having three ribosomal binding sites,
suggesting a more difficult hurdle for resistance mechanisms. In support of this, solithromycin has demonstrated
potency against multiple macrolide-resistant pneumococcal strains. Finally, solithromycin’s side effect profile
appears promising, as described above. We believe the flexibility of dosing IV-to-oral, combined with
solithromycin’s efficacy, activity against resistant strains, and safety, create a compelling, differentiated value
proposition for physicians and patients.
Cempra’s second program, Taksta, is currently in a phase II trial in prosthetic joint infections, with results expected
by year-end. We expect investors to focus on solithromycin as the company’s primary value proposition. However,
positive PJI data could be an incremental driver, as Taksta could receive up to 10 years of market exclusivity by
virtue of being both a new chemical entity and having received designation as a “qualified infectious disease
product” (QIDP) under the recently passed legislation known as the Generating Antibiotic Incentives Now (GAIN)
Act. We therefore view Taksta as a lower-risk asset with the potential to generate relatively inexpensive upside.
We expect Cempra to seek a partner prior to solithromycin’s commercialization. This highlights, in our view, an
important undercurrent in the antibiotics space, and one that should benefit Cempra and others. Over the past two
years, the regulatory landscape for new anti-infectives has evolved significantly, with the FDA clarifying Guidances
and key trial design issues. As the pharmaceutical industry has gradually shifted resources away from antibiotic
development, an innovation vacuum has ensued. We believe the clarified guidance creates a positive backdrop for
late-stage assets as many companies may seek to regain access to hospital-associated therapeutics. As we see it,
this improved environment should benefit firms like Cempra.
Cempra’s management team has excellent industry experience. Prabha Fernandes, CEO, has previously worked on
antibiotic drug discovery at Bristol-Myers Squibb and Abbott Labs, and has served on the board of directors of
Optimer Pharmaceuticals (OPTR, $12.30, Buy). Mark Hahn, CFO, was formerly CFO of the Ag-Bio firm Athenix, which
was acquired by Bayer CropScience in 2009. David Oldach, MD, SVP of Clinical Research, was formerly a clinical
research director at Gilead Sciences. We believe management’s combined experience in microbiology, regulatory
affairs, and drug development creates a strong team for navigating a late-stage asset through regulatory and clinical
hurdles.
4
Upcoming Milestones
Key upcoming events for Cempra include completion of enrollment in the ongoing phase III trial of solithromycin
in CABP, expected to occur by year-end. This trial will serve as a cornerstone of the company’s planned regulatory
filing for CABP. As such, the completion of enrollment and data release timelines will be important events, although,
in our view, not necessarily stock-moving on their own.
An important 2H13 event will be the conclusion of planned QTc studies with the IV and oral formulations of
solithromycin. We believe that, given recent FDA communications related to cardiovascular safety associated with
azithromycin, a widely prescribed macrolide, a successful and uneventful conclusion of the solithromycin studies will
be an important development milestone for the program.
We expect top-line data from the ongoing CABP trial in 1H14. Positive data could be an important catalyst for the
shares, as the results may increase confidence in the outcome of the second phase III trial, leading to an improved
probability of completing successful regulatory filings and achieving subsequent marketing approval.
The company also expects to meet with the FDA in 2Q13 to discuss plans for a phase III trial utilizing an IV-to-oral
step-down regimen in CABP. Pending constructive feedback, Cempra could begin this trial around mid-year. This
trial is expected to take approximately 18 months to complete and would provide data to support a possible NDA
filing. If successful, the trial would serve to establish solithromycin as an option to more-readily facilitate the
discharge of hospitalized CABP patients. Positive data could demonstrate that solithromycin is more convenient
than competitive agents, providing an argument supporting pharmacoeconomic benefits over IV-only therapies.
We also expect Cempra to announce the results of an ongoing phase II trial of Taksta in prosthetic joint infections
in 4Q13. This study could provide the basis for Taksta to represent an important incremental revenue stream given
the relatively higher doses and extended treatment times used in this setting. Pending positive data, we think the
company could initiate a phase III program in 2014.
The following table summarizes key upcoming catalysts for Cempra shares.
Source: Cempra Inc. and SunTrust Robinson Humphrey
Product Event Expected
Solithromycin (CEM-101) End of phase II meeting with FDA on planned IV to oral switch trial 1H13
Conduct IV and oral QTc studies 2013
Initiation of phase III IV-to-oral CABP trial 2H13
Initiation of phase III trial, gonorrhea 2H13
Top-line data, phase III oral CABP trial 1H14
Taksta Top-line data, phase II PJI trial 4Q13/1H14
5
Valuation
Probability-Adjusted Valuation Suggests $12 Equity Price
Our 12-month price target for Cempra shares is $12. This is based on a 30x multiple of our probability-adjusted
2019 EPS estimate of $0.94, discounted six years back at 15%. We believe a 15% discount rate is appropriate given
the probability-adjustment already applied to the EPS estimate. Our 30x multiple is a common earnings multiple for
emerging biopharmaceutical firms, although slightly lower than the 35x we would apply in a less-competitive
environment. Our model reflects an expected partnership for solithromycin, with a profit share of approximately
50-50, as well as an ex-U.S. partnership providing an approximate 20% royalty on sales. We estimate 2019 U.S.
revenue of approximately $381M, consisting largely of sales of solithromycin in the CABP setting ($334M). Royalty
revenue is expected to grow to approximately $28M in 2019. The calculation is highlighted below.
Cempra, Inc. – Present Value of Development Candidates
Source: SunTrust Robinson Humphrey
EPS Multiple Valuation Suggests $12 Equity Price
Applying a 30x multiple to our 2019 EPS estimate of $1.52 and discounting six years back at 25% results in a
theoretical equity value of $11.98. We believe a 30x multiple and 25% discount rate are appropriate as they reflect
the typical multiple for a profitable biotechnology firm and we think they adequately risk-adjust future earnings. We
prefer the probability-adjusted method as it allows a handicapped estimate of a specific product’s chance of
approval and launch. Our EPS multiple valuation derivation is shown below.
Cempra Inc. - Present Value of Development Candidates
Product Candidate
Probability of
Approval
Potential 2019
U.S. Revenue (2)
Approx Net
Margin
2019 Ex-U.S.
Royalty (2)
Total EPS
Contribution*
Weighted EPS
Contribution *
Solithromycin - CABP 60% $311 15% $26 $1.38 $0.83
Solithromycin - Gonorrhea 60% $24 15% $2 $0.10 $0.06
Taksta - Prosthetic Joint 55% $19 25% - $0.09 $0.05
Total Worldwide Revenue $353 - $28 $1.57 $0.94
* Assumes 52 million shares out in 2019. Notes: (1) Assumes off-label use. (2) Assumes 20% royalty on ex-U.S. sales.
Probability-adjusted 2019E EPS: $0.94
Discounted Years 6.0
Discount Rate
EPS Multiple 5% 10% 15% 20% 25% 30% 35%
10 7 5 4 3 2 2 2
15 11 8 6 5 4 3 2
20 14 11 8 6 5 4 3
25 18 13 10 8 6 5 4
30 21 16 $12.17 9 7 6 5
35 25 19 14 11 9 7 5
40 28 21 16 13 10 8 6
45 32 24 18 14 11 9 7
6
Cempra, Inc. – EPS Multiple Valuation
Source: SunTrust Robinson Humphrey
Sales Multiple Valuation Suggests $10 Equity Price
Applying a 5x multiple to our 2019 estimate of total revenue and discounting six years back at 25% result in a
theoretical equity value of $9.68. We believe a 5x multiple and 25% discount rate are appropriate as they reflect a
typical sales multiple for an emerging biotechnology firm and a reasonably conservative discount rate to reflect
development and regulatory risk. Of the methods outlined, we believe the sales multiple approach is least accurate.
We prefer the probability-adjusted method as it allows a handicapped estimate of a specific product’s prospects for
approval and launch. That said, our sales multiple approach is shown below.
Cempra, Inc. – Sales Multiple Valuation
Source: SunTrust Robinson Humphrey
Pipeline Overview
Cempra’s pipeline includes two clinical-stage programs: Solithromycin, a novel ketolide antibiotic for community
acquired bacterial pneumonia (CABP), and Taksta (fusidic acid), for joint and bone infections. We believe
solithromycin will be the key value driver, representing the first potential new oral and IV macrolide-type therapy to
reach the market since azithromycin, now generic, was approved approximately 20 years ago. Solithromycin’s
differentiating features include potent activity against problematic bacteria, improved convenience from both oral
and IV dosing options, and an encouraging safety profile, based on preliminary data. Taksta represents a potential
therapy for prosthetic joint infections, with an excellent long-term safety and tolerability profile demonstrated over
several decades in ex-U.S. commercial settings (fusidic acid is approved in Europe and other geographies). Cempra’s
novel dosing approach for Taksta may result in improved efficacy and a reduced propensity for resistance. We
expect the company to explore partnering opportunities as each program moves further along the development
path.
Multiple of 2019E EPS
2019E EPS $1.52
Multiple 30
Value $46
Discount 25%
Years 6
Discounted value $11.98
Multiple of 2019E Sales
2019E sales $381
Discount 25%
Years 6
Shares out in 2019 52
Discounted value $1.94
Multiple 5
Value per share $9.68
7
Solithromycin
Cempra’s lead program is solithromycin, a novel ketolide antibiotic for Gram positive infections. Solithromycin’s
potent activity against Streptococcus pneumoniae makes it an attractive therapeutic candidate for infections for
which these bacteria are problematic, most notably the respiratory tract setting, including CABP, acute bronchitis,
pharyngitis, and otitis media. In addition, solithromycin is active against certain Gram negative strains, such as
Neisseria gonorrhoeae, which allow for development of a potential treatment of gonorrhea infections. We believe
solithromycin’s activity against a variety of difficult to treat bacterial strains creates development opportunities in a
similarly broad range of potential markets.
In our view, solithromycin possesses multiple differentiating properties compared to currently marketed
antibiotics, and that should help to mitigate its commercial risk. Four key areas in which the drug appears to have
advantages vs. existing therapies are potency, activity against resistant bacteria, an improved side effect profile, and
the convenience of both oral and intravenous dosing formulations. These areas are summarized briefly below.
Potency: Solithromycin has demonstrated potent, broad-spectrum activity against key pathogens
responsible for community based infections. Importantly, its activity has been shown to be at least
comparable to that of azithromycin. As a reminder, azithromycin is the most commonly prescribed
macrolide antibiotic, accounting for approximately 80% of all macrolide prescriptions in 2012 (Symphony
Health data). We believe the observation that approximately 30% of North American S. pneumoniae strains
exhibit resistance to azithromycin, nearly twice the level observed just 10 years ago, suggests a compelling
need for safe and effective new therapies. The following table briefly summarizes comparative data for
solithromycin and azithromycin across various Gram positive and negative organisms. Cempra has
previously published these data in numerous scientific forums.
Summary Comparison: Solithromycin and Azithromycin
Source: Cempra, Inc.
Activity against resistant strains: A second key property of solithromycin is its activity against multidrug
resistant pathogens, including both macrolide and quinolone-resistant strains. Based on structural
differences on both the macrolide ring and a key side-chain, Cempra believes solithromycin incorporates
features that impart improved resistance to common bacterial mutations. These changes require bacteria
to develop mutations at three ribosomal sites in order to affect resistance, vs. one or two for older-
generation macrolides. The company has published extensive data demonstrating solithromycin’s activity
against macrolide-resistant pneumococci with ermB, mefA, ermB-mefA, and L4 mutations. We believe this
profile creates an attractive therapeutic option for patients who may be exposed to highly virulent
MIC90 (ug/mL)
Strain (# of organisms) Solithromycin Azithromycin
Streptococcus pneumoniae (150) 0.25 >16
Haemophilus influenzae (100) 2 2
Streptococcus pyogenes (100) 0.03 >16
Legionella pneumophila (30) < 0.015 2
Mycoplasma pneumoniae (36) 0.000125 0.0005
Chlamydophila pneumoniae (10) 0.25 0.125
8
community bacteria. The following table highlights comparative data for solithromycin against common
macrolide resistant strains.
Summary of Solithromycin Activity in Macrolide Resistant Bacteria
Safety and side effect profile: We expect solithromycin’s promising preliminary safety profile to
differentiate it from prior macrolide antibiotics, most notably telithromycin (Ketek, Sanofi). Cempra believes
solithromycin’s novel chemical structure should obviate certain problematic side effects observed with
Ketek, such as liver failure, blurred vision, and confusion. While certain of the macrolides and
fluoroquinolones have been associated with QTc prolongation, solithromycin has not shown any significant
cardiovascular safety signal. The side effect profile to-date has shown the drug to be safe and well-
tolerated. Phase II data, discussed below, have also demonstrated a lower incidence of treatment-emergent
adverse events compared with levofloxacin (generic), the most commonly prescribed quinolone for CABP.
We believe solithromycin’s relatively benign safety profile suggests an excellent benefit-risk payoff
compared with competing therapies.
Convenience, single drug regimen available in oral and intravenous dosing formulations: An important
potential benefit to solithromycin is its activity as a monotherapy in the CABP setting. Many patients receive
two drugs for CABP, such as a cephalosporin and a macrolide. A single drug regimen provides for a
simplified dosing regimen.
Cempra is also developing both intravenous and oral dosing formulations of solithromycin. This should
facilitate broader potential uptake, as physicians can initiate therapy for more severely ill patients utilizing
the IV formulation and can transition them to oral therapy on discharge. The ability to continue use of the
same drug on discharge is attractive, particularly when initial therapy shows benefit. Certain competing
options require switching from IV to an alternative drug when patients are discharged, due to a lack of an
oral formulation. We view the convenience of both formulations as a positive differentiator for
solithromycin.
We expect solithromycin’s differentiated profile to resonate with infectious disease specialists, leading to market
uptake, despite the presence of generic competitors.
Solithromycin: Current Status
Cempra initiated a phase III trial of oral solithromycin in community acquired bacterial pneumonia in 4Q12. The
trial is a randomized, double-blind, international study comparing the oral formulation of solithromycin to
fluoroquinolone moxifloxacin in approximately 800 CABP patients. Solithromycin patients will receive an initial
800mg loading dose followed by once-daily doses of 400mg for four days. Moxifloxacin patients will receive oral
doses of 400mg once daily for seven days.
MIC90 (ug/mL)
Resistance type
(# of strains)Solithromycin Azithromycin Telithromycin Clindamycin
Amoxicillin/
Clavulanic acidLevofloxacin Penicillin G
erm(B) (54) 0.5 >64 1 >64 8 2 4
mef(A) (51) 0.125 8 0.25 0.06 2 2 4
erm(B)+mef(A) (31) 0.25 >64 1 >64 8 16 4
L4 mutations 0.125 >64 0.25 0.125 8 2 16
Source: AAC, 54:230-8, 2010.
9
The primary endpoint will evaluate response to therapy at 72 hours, per recommendations by the FDA’s Anti-
Infective Drugs Advisory Committee, in 4Q11. Response is defined as improvement in at least two of the four
following symptoms: cough, sputum production, chest pain, and shortness of breath, with no worsening in any
category. We anticipate a non-inferiority margin of 10% for solithromycin responders vs. moxifloxacin. Top-line
data are expected in 1H14. The following table outlines the planned phase III trial for oral solithromycin.
Cempra, Inc. – Overview of Phase III CABP Trial of Oral Solithromycin
Source: Cempra, Inc. and SunTrust Robinson Humphrey
Cempra also intends to conduct a phase III trial of intravenous solithromycin in CABP, which would incorporate an
IV-to-oral step-down regimen. The company plans to finalize the protocol following a planned End of Phase II
Meeting with the FDA in 2Q13. We expect the trial to begin shortly thereafter, potentially in 2H13. Based on a
recently completed phase I study, the company would initiate IV dosing at 400mg, then transition to oral. In our
view, the clinical implication would be to treat admitted CABP patients having more-severe PORT scores (III-IV) with
IV, then discharge with an oral solithromycin prescription at day two or three. Pending initiation timelines, top-line
results could be available by the end of 2014. We believe the convenience of continuity of therapy would be
attractive to physicians, as it would represent an option to further reduce uncertainty about continued treatment
benefit.
A third phase III trial of solithromycin will target gonococcal infections, and we currently expect this to be a 2013
initiation, although the timing is less certain. The company recently completed a successful phase II study in
gonorrhea, demonstrating a 100% efficacy rate, although the trial’s size was relatively modest (n=22). We view this
indication as a potentially attractive opportunity given the lack of recently approved therapies and the recent
removal of oral cephalosporin therapy from the CDC’s recommended treatment guidelines. Gonococcal infections
are increasingly resistant to legacy antibiotics such as cefixime and ceftriaxone.
Solithromycin: Prior Data Suggest Promise in CABP, Gonorrhea
Phase II CABP data for basis for phase III program
Cempra has successfully completed phase II trials of solithromycin in both CABP and gonococcal infections. The
phase II CABP trial was a randomized, double-blind, multicenter study intended to compare solithromycin and the
fluoroquinolone levofloxacin. A total of 132 patients received either oral solithromycin at a loading dose of 800mg,
followed by once daily doses at 400mg for four days, or levofloxacin at 700mg daily for five days. The primary
endpoint assessed clinical success at the test-of-cure visit, 5 to 10 days following the last dose of therapy, in the
intent-to-treat and clinically evaluable populations. An important secondary endpoint was early response rates at
day three, defined as improvement in two of the four symptoms of cough, sputum production, chest pain, and
dyspnea, with no worsening in any of these.
Trial Arms Patients Population Design Endpoint
Phase III study
in CABP
comparing
solithromycin to
moxifloxacin
2 800 Patients with CABP
characterized by
PORT scores
ranging from II to IV,
with 50% PORT III
or worse
Global, multi-center, double-blind,
randomized non-inferiority study to
evaluate oral solithromycin for 5
days (800mg QD/day 1, 400mg QD
days 2-5) versus oral moxifloxacin
for 7 days (400mg QD on days 1-7)
Primary endpoint: Early
response at 72 hrs, defined as
improvement in two of the
following: cough, sputum
production, chest pain, and
difficulty breathing. Non-
inferiority margin 10%
10
Cempra, Inc. – Overview of Phase II CABP Trial Design, Oral Solithromycin
Source: Cempra, Inc. and SunTrust Robinson Humphrey
We believe the early response data were critically important, as they are the same endpoints being evaluated in
the ongoing phase III trial and are likely to become part of upcoming FDA Guidance on requirements for new drugs
in the CABP setting. This trial was completed in 3Q11, and data were presented at the European Congress of Clinical
Microbiology and Infectious Diseases (ECCMID) in 1Q12.
The trial successfully demonstrated solithromycin’s activity in CABP and showed promising comparability to
levofloxacin on the primary endpoint of clinical cure as well as in the key secondary measures, including early
response. As levofloxacin is widely used as a standard of care in CABP, we believe the data support Cempra’s belief
that solithromycin represents an attractive alternative on efficacy alone. We believe the drug’s activity in resistant
strains as well as its improved tolerability profile are areas of differentiation. A summary of important data are
shown in the following table.
Cempra, Inc. – Overview of Phase II CABP Data, Oral Solithromycin
The company believes the differences shown in cure rate in the clinically evaluable population reflect imbalances
in exclusion criteria, whereby certain clinical success in the solithromycin arm was excluded, along with certain
failures in the levofloxacin arm. This resulted in data that suggested numerically higher success rates in the
levofloxacin arm. We believe the totality of data shows close comparability between the two arms, supporting
Cempra’s analysis.
Importantly, the phase II data suggest a safety and tolerability advantage for solithromycin over levofloxacin. As
the table below shows, solithromycin patients experienced fewer treatment emergent adverse events, and none
withdrew from the trial due to an adverse event. By comparison, six levofloxacin patients withdrew due to an
adverse event. As we expect many investors to focus solely on pricing and top-line efficacy, these safety and
tolerability data serve as important reminders of other aspects that both physicians and patients consider when
Trial Arms Patients Population Design Endpoint
Phase II study
in CABP
comparing
solithromycin to
levofloxacin
2 132 Adult patients with
moderate to
moderately-severe
CABP
Multi-center, double-blind,
randomized study to evaluate oral
solithromycin (800mg q.d./day 1,
400mg q.d. on days 2-5) versus
oral levofloxacin (750mg q.d. on
days 1-5)
Primary endpoint: test-of-cure (TOC)
5 to 10 days after the last dose of
study drug) in intent-to-treat (ITT) and
clinically-evaluable (CE) populations.
Key secondary assessments
included early response at 72 hrs.
Visit, patient group Solithromycin Levofloxacin
Test of Cure Visit (1)
Intent to treat ITT (co-primary endpoint) 55/65 (84.6) 58/67 (86.6)
Clinically evaluable (co-primary endpoint) 46/55 (83.6) 54/58 (93.1)
Streptococcus pneumonia patients 12/15 (80.0) 10/13 (76.9)
Early Response, Day 3 ITT (2) 47/65 (72.3) 48/67 (71.6)
Notes: (1) Four to 11 days following last drug dose. (2) Expected to be new
FDA Guidance. Source: European Congress of Clinical Microbiology and Infectious
Diseases (ECCMID), Abstract P719, March 31, 2012
Cure rates by dose group (n/N, %)
11
selecting CABP therapy. In particular, patients who are more-severely ill or fragile are similarly more sensitive to
tolerability issues. We believe that if similar tolerability differences are observed in phase III data, solithromycin
would be preferred in the more-severe populations. Safety and tolerability data from the phase II trial are outlined
below.
Cempra, Inc. – Overview of Phase II CABP Data, Oral Solithromycin
Phase II gonorrhea results highlight broader potential utility
In 4Q12, Cempra announced positive top-line results from a phase II trial of solithromycin in uncomplicated
urogenital gonorrhea. This study was a single site, single arm trial in 25 patients with clinically proven gonococcal
infection. Patients received a single dose of solithromycin at 1200mg and were evaluated for bacterial eradication
at seven days after treatment. A total of 22 patients were evaluable, based on positive baseline cultures.
The data showed a 100% cure rate among evaluable patients. In addition to clearing urethral and cervical
infections, all pharyngeal and rectal infections were also cleared. Further details regarding safety and tolerability
were not disclosed; we expect possible details at a future conference. Based on these results, Cempra plans to
initiate a phase III trial in gonorrhea, potentially in 2H13. The company may seek funding assistance from a
government source prior to initiating such a trial. While we view CABP to be the primary market for solithromycin,
we believe the revenue opportunity for gonorrhea represents an important incremental driver. As a reminder, the
CDC recently removed cephalosporins from recommended treatment guidelines, suggesting a possible widening of
the opportunity for new agents in this area.
Phase I IV trial complete; sets stage for key IV-to-oral step-transition study
Cempra also recently completed a phase I study evaluating the safety and tolerability of the intravenous
formulation of solithromycin in healthy volunteers. This study evaluated doses ranging from 25mg to 800mg and
evaluated important safety parameters such as the QT interval and adverse events. The company expects to utilize
the 400mg dose in a planned phase III IV-to-oral step-down trial, which is to begin following a planned end of the
phase II meeting with the FDA. The importance of this dose selection and ability to transition is that they allow
patients to transition to oral doses at the same dosage, helping to remove an additional element of uncertainty
when transitioning patients from intravenous dosing on hospital discharge. We believe this will serve to further
differentiate solithromycin from alternative therapies. Notably, the last macrolide antibiotic to reach the market in
both oral and intravenous formulations was azithromycin, nearly 20 years ago. We expect dosing convenience and
the ability to lower uncertainty on discharge to resonate with physicians seeking ways to most-effectively transition
patients out of the hospital.
Patients with various treatment
emergent adverse events (TEAEs) Solithromycin Levofloxacin
Experiencing at least one TEAE 19 (29.7) 31 (45.6)
Gastrointestinal 9 (14.1) 16 (23.6)
CNS, musculoskeletal 11 (17) 11 (16)
Withdrew from study due to TEAE 0 6 (9)
Source: European Congress of Clinical Microbiology and Infectious
Diseases (ECCMID), Abstract P719, March 31, 2012
Adverse events by dose group (n, %)
12
Taksta: Current Status
Cempra is developing Taksta, a novel formulation of fusidic acid, for prosthetic bone infections. Fusidic acid is a
steroidal antibiotic that has been used for decades in markets outside the U.S. for skin infections. Cempra’s
proprietary dosing regimen is expected to result in improved efficacy and a reduced potential for resistance. While
Taksta has never been approved in the U.S., the drug’s extensive long-term safety profile may lead to increased
interest from infectious disease physicians. We currently view Taksta as a long-term opportunity with relatively little
downside potential based on the Street’s conservative revenue expectations.
Importantly, if successful, Cempra could be entitled to up to 10 years of market exclusivity with Taksta, based on
five years of new chemical entity (NCE) protection and additional protection afforded by recent antibiotics
legislation. Should Taksta meet the criteria to be characterized as a Qualified Infectious Disease Product (QIDP)
under the recent FDA GAIN (Generating Antibiotic Incentives Now) legislation, an additional five years of market
exclusivity could be granted on top of the NCE exclusivity. Thus, it is conceivable that Taksta could achieve an
attractive commercial lifespan in the U.S.
Phase II Trial in Prosthetic Joint Infections to Complete by Year-End
In 4Q12, Cempra initiated an open-label phase II trial of Taksta in up to 50 patients with prosthetic joint infection.
This trial is enrolling patients undergoing hip or knee replacement surgery and involves the addition of Taksta to a
standard regimen of rifampin, compared to an active comparator of IV vancomycin, nafcillin, oxacillin, cefazolin, or
ceftriaxone. Patients will receive an initial Taksta loading dose of 1,500mg BID on day one, followed by 600mg BID
doses for up to 12 weeks. The primary endpoint will be clinical success as defined by the absence of persistent
infection at 12 weeks. We anticipate that data could be available in 4Q13. If successful, a phase III trial could follow
in 2014.
Market Opportunity
Solithromycin: Community Acquired Bacterial Pneumonia
We believe the U.S. market opportunity for solithromycin in CABP could exceed $350M annually within five years
of launch. Our model assumes a late-2015/early-2016 U.S. product launch. We base this number on a potential 5%
penetration rate into the overall 4.5 million annual CAPB cases reported in the U.S. annually. While anywhere from
40% to 60% of these are believed to result from Streptococcus pneumonia, we believe use will initially ramp in cases
of suspected fluroquinolone or macrolide resistance, a substantial opportunity. In our view, if the attributes
outlined previously are borne out in the phase III program – namely the drug’s impressive efficacy, activity against
resistant strains, improved safety and tolerability, and the flexibility imparted by the availability of both oral and
intravenous dosing forms – then our forecast of a 5% penetration rate in 2020 could be conservative. Despite the
presence of generic therapies such as cephalosporins and macrolides, we expect solithromycin to realize an
attractive ramp due to the drug’s differentiated profile. The following table highlights our solithromycin revenue
model in both the U.S. and ex-U.S. markets.
13
Cempra, Inc. – Solithromycin Revenue Model, CABP
Source: SunTrust Robinson Humphrey
Solithromycin: Gonococcal Infections
We currently estimate the U.S. market opportunity for solithromycin in gonorrhea to be approximately $29M.
While not as large as the CABP market, we believe the recent removal of the last single-agent cephalosporin from
the CDC’s recommended treatment guidelines suggests an opportunity for solithromycin. We would expect
incremental off-label use to follow from a potential successful phase III trial in gonococcal infections. Cempra plans
to initiate a phase III trial in 2H13. A number of different therapeutics are currently used in this setting, with the
CDC recommending combination approaches such as ceftriaxone/azithromycin and cefixime/doxycycline. However,
we believe the opportunity to replace these combinations with a single dose of a single drug may resonate with
certain physicians, particularly in cases where cultures suggest problematic resistance. Our model assumes modest
penetration into the approximately 740K annual reported cases of gonorrhea following a 2016 launch. We currently
assume 2020 sales of $29M in the U.S. and $13M in Europe. Our model and estimates are shown below.
Cempra, Inc. – Solithromycin Revenue Model, Gonococcal Infections
U.S. Solithromycin Sales 2015E 2016E 2017E 2018E 2019E 2020E
CABP incidence 4,613,631 4,636,699 4,659,882 4,683,182 4,706,598 4,730,131
Solithromycin penetration 0.00% 0.50% 2.00% 3.50% 4.50% 5.00%
No. of patients treated - 23,183 93,198 163,911 211,797 236,507
Days on treatment 5 5 5 5 5 5
Total patient days - 115,917 465,988 819,557 1,058,984 1,182,533
Total doses 5 5 5 5 5 5
Cost per day $232 $246 $261 $277 $293 $311
Total U.S. sales: CABP - $28,536,911 $121,601,486 $226,698,611 $310,502,611 $367,531,590
Ex-U.S. Solithromycin Sales 2015E 2016E 2017E 2018E 2019E 2020E
CABP incidence 4,152,268 4,173,029 4,193,894 4,214,864 4,235,938 4,257,118
Solithromycin penetration 0.00% 0.00% 0.25% 2.00% 3.50% 4.50%
No. of patients treated - - 10,485 84,297 148,258 191,570
Days on treatment 5 5 5 5 5 5
Total patient days - - 52,424 421,486 741,289 957,851
Total doses 5 5 5 5 5 5
Cost per day $139 $148 $157 $166 $176 $186
Total ex-U.S. sales: CABP - - $8,208,100 $69,952,714 $130,411,096 $178,620,353
U.S. Solithromycin Sales 2015E 2016E 2017E 2018E 2019E 2020E
Gonorrhea incidence 735,707 743,064 750,495 758,000 765,580 780,891
Solithromycin penetration 0.00% 1.00% 3.00% 5.00% 7.00% 8.00%
No. of patients treated - 7,431 22,515 37,900 53,591 62,471
Days on treatment 1 1 1 1 1 1
Total patient days - 7,431 22,515 37,900 53,591 62,471
Doses per day 1 1 1 1 1 1
Cost per day $348 $369 $391 $415 $440 $466
Total U.S. sales: Gonorrhea - $2,743,946 $8,813,007 $15,725,342 $23,569,771 $29,124,156
14
Source: SunTrust Robinson Humphrey
Taksta: Prosthetic Joint Infections (PJI)
We model a potential Taksta U.S. market introduction in the 2H17 and assume initial use in prosthetic joint
infections and osteomyelitis. We estimate approximately 75K cases of osteomyelitis and 18K cases of prosthetic
joint infection will require treatment with antibiotic therapy (company-contracted market research). Our model
assumes Taksta use for up to six weeks at a standard dose of 600mg twice daily and a daily cost of approximately
$110. With modest initial penetration, we believe U.S. sales could reach $31M in 2020. The following tables
highlight our U.S. Taksta revenue models for PJI and osteomyelitis.
Cempra, Inc. – Taksta Revenue Model, Prosthetic Joint Infection
Source: SunTrust Robinson Humphrey
Cempra, Inc. – Taksta Revenue Model, Osteomyelitis
Source: SunTrust Robinson Humphrey
Ex-U.S. Solithromycin Sales 2015E 2016E 2017E 2018E 2019E 2020E
Gonorrhea incidence 662,136 668,758 675,445 682,200 689,022 702,802
Solithromycin penetration 0.00% 0.00% 2.50% 4.00% 5.00% 6.00%
No. of patients treated - - 16,886 27,288 34,451 42,168
Days on treatment 1 1 1 1 1 1
Total patient days - - 16,886 27,288 34,451 42,168
Doses per day 1 1 1 1 1 1
Cost per day $226 $240 $254 $270 $286 $303
Total ex-U.S. sales: Gonorrhea - - $4,296,341 $7,359,460 $9,848,797 $12,778,224
U.S. Taksta Sales 2017E 2018E 2019E 2020E
Cases of PJI 17,690 17,867 18,046 18,226
Taksta penetration 0.50% 1.50% 3.00% 5.00%
No of patients treated 88 268 541 911
Days on treatment 42 42 42 42
Total patient days 3,715 11,256 22,738 38,275
Cost per day $110 $117 $124 $131
Total U.S. sales: PJI $408,645 $1,312,487 $2,810,296 $5,014,506
U.S. Taksta Sales 2017E 2018E 2019E 2020E
Cases of osteomyelitis 77,050 77,821 78,599 79,385
Taksta penetration 0.50% 2.00% 4.00% 6.00%
No of patients treated 385 1,556 3,144 4,763
Days on treatment 42 42 42 42
Total patient days 16,181 65,369 132,046 200,049
Cost per day $110 $117 $124 $131
Total U.S. sales: Osteomyelitis $1,779,855 $7,622,051 $16,320,336 $26,208,827
15
Intellectual Property
Cempra, Inc. - Patent owned by Cempra
Source: USPTO, Cempra, Inc., and SunTrust Robinson Humphrey
Cempra Inc. - CEM-101 related Patents Licensed by Cempra from Optimer
Source: USPTO, Cempra, Inc., and SunTrust Robinson Humphrey
Company Management
Cempra, Inc. - Key Management
Source: Cempra, Inc.
U.S. Patent # Assignee Issued Expiry Notes
8,247,394 Cempra 8/21/2012 2031 Method of using fusidic acid to treat and prevent urethritis, an ocular
infection, or a pharyngeal infection caused by Neisseria gonorrhoeae or
Chlamydia trachomatis.
U.S. Patent # Assignee Issued Expiry Notes
8,343,936 Optimer 1/1/2013 2024 U.S. Appln (13/136,172) granted allowance on 9/4/2012; Continuation of
U.S. Patent 8,012,943 (which is a continuation of U.S. Patent 7,601,695) -
Composition of matter patent describing novel functionalized macrolide
compounds.
8,012,943 Optimer 9/6/2011 2024 Continuation of U.S. Patent (7,601,695) - Composition of matter patent
describing novel functionalized macrolide compounds.
7,601,695 Optimer 10/13/2009 2025 Composition of matter patent describing novel functionalized macrolide
compounds, methods of preparing said macrolides, and including but not
limited to use of such macrolides as antibacterial agents.
Name Position Experience
Prabhavathi Fernandes, Ph.D. Founder,
President, CEO
President, CEO, DarPharma, Ricerca
Biosciences and Small Molecule Therapeutics;
Advisory Board Member, Optimer
Pharmaceuticals, Inc.
Mark W. Hahn EVP, Chief
Financial Officer
CFO, Athenix Corp.; CFO, BuildLinks, Inc.; CFO,
Charles & Colvard, Ltd.
Carl T. Foster EVP, Business
Development
CEO, Jurilab; Managing Director, Ferghana
Partners, Inc.
David Pereira, Ph.D. Senior VP,
Chemistry
Director, Synthesis Group, Cardinal Healthcare
David Oldach, M.D., FIDSA Senior VP,
Clinical
Research
Clinical research director, Gilead Sciences,
Inc.
16
Summary Financials
As of December 31, 2012, Cempra had approximately $70M in cash and equivalents. We currently estimate a 2013
cash burn of approximately $61M. A summarized balance sheet is shown below.
Source: Cempra, Inc.
Assets 12/31/12
Cash and equivalents $70,109
Prepaid expenses $265
PP&E, net $43
Deposits $321
Total Assets $70,738
Liabilities and Shareholders' Equity
Current liabilities $5,345
Long-term Debt $7,623
Shareholders' Equity $57,770
Total Liabilities and Shareholders' Equity $70,738
(Amounts in thousands)
17
Cempra, Inc. – Statement of Operations, Quarterly
Ce
mp
ra, In
c. --
Sta
tem
en
t o
f O
pe
rati
on
sA
mounts
in t
housands,
exc
ept
per-
share
fig
ure
s
Bri
an
Lia
n,
Ph
.D.
212-3
19-3
728
1Q
11A
2Q
11A
3Q
11A
4Q
11A
2011A
1Q
12A
2Q
12A
3Q
12A
4Q
12A
2012A
1Q
13E
2Q
13E
3Q
13E
4Q
13E
2013E
1Q
14E
2Q
14E
3Q
14E
4Q
14E
2014E
Glo
ba
l S
oli
thro
mycin
Sa
les
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Re
ve
nu
e
Solit
hro
mycin
reve
nues
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Taksta
reve
nue
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Royalty r
eve
nue
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
To
tal
op
era
tin
g r
eve
nu
e-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Op
era
tin
g e
xp
en
ses:
Cost
of goods s
old
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Researc
h &
deve
lopm
ent
4,3
92
4,3
61
6,6
61
1,4
58
16,8
72
1,8
76
7,4
24
3,1
56
4,4
13
16,8
69
8,5
79
10,6
15
16,1
28
17,8
51
53,1
73
17,2
41
12,6
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11,4
28
5,9
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47,2
34
SG
&A
880
806
965
1,0
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3,7
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972
1,7
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1,4
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1,8
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6,0
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1,9
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2,0
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2,2
13
2,1
98
8,4
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2,2
87
2,3
25
2,2
90
2,4
39
9,3
41
Colla
bora
tive
pro
fit s
hare
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
To
tal
op
era
tin
g e
xp
en
ses
5,2
72
5,1
67
7,6
26
2,5
15
20,5
80
2,8
48
9,2
01
4,6
51
6,2
38
22,9
37
10,5
66
12,6
85
18,3
41
20,0
49
61,6
41
19,5
28
14,9
40
13,7
18
8,3
89
56,5
75
Inco
me
(L
oss
) fr
om
op
era
tio
ns
(5,2
72)
(5,1
67)
(7,6
26)
(2,5
15)
(2
0,5
80)
(2
,848)
(9,2
01)
(4,6
51)
(6
,238)
(22,9
37)
(1
0,5
66)
(1
2,6
85)
(1
8,3
41)
(2
0,0
49)
(6
1,6
41)
(19,5
28)
(1
4,9
40)
(1
3,7
18)
(8
,389)
(56,5
75)
Oth
er
incom
e (
expense)
(641)
-
-
-
(6
41)
(3
02)
(327)
(330)
(330)
(1,2
89)
(312)
(312)
(312)
(312)
(1,2
48)
(3
12)
(312)
(312)
(312)
(1,2
48)
Pre
tax
in
co
me
(lo
ss)
(5,9
13)
(5,1
67)
(7,6
26)
(2,5
15)
(21,2
21)
(3,1
50)
(9,5
28)
(4,9
81)
(6,5
68)
(24,2
26)
(10,8
78)
(12,9
97)
(18,6
53)
(20,3
61)
(62,8
89)
(19,8
40)
(15,2
52)
(14,0
30)
(8,7
01)
(57,8
23)
Accre
tion o
f re
deem
able
conv
pre
ferr
ed
(941)
(9
40)
(9
41)
(9
41)
(3
,763)
(314)
-
-
-
(314)
-
-
-
-
-
-
-
-
-
-
Incom
e t
ax e
xpense (
benefit
)-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Ne
t in
co
me
(lo
ss)
(6,8
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(6,1
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(8,5
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(3,4
56)
(2
4,9
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(3
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(9,5
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(4,9
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(6
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(24,5
40)
(1
0,8
78)
(1
2,9
97)
(1
8,6
53)
(2
0,3
61)
(6
2,8
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(19,8
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(1
5,2
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(1
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(8
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(57,8
23)
Ba
sic e
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s (l
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sha
re($
13.4
1)
($11.6
5)
($16.0
4)
($6.4
7)
($47.5
3)
($0.2
6)
($0.4
5)
($0.2
4)
($0.2
7)
($1.2
3)
($0.4
4)
($0.4
3)
($0.6
1)
($0.6
6)
($2.1
6)
($0.6
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($0.4
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($0.3
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($0.2
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($1.6
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d e
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($11.6
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($16.0
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($6.4
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($47.5
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($0.2
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($0.4
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($0.2
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($0.2
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($1.2
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($0.4
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($0.4
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($0.6
1)
($0.6
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($2.1
6)
($0.6
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($0.4
2)
($0.3
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($0.2
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($1.6
4)
Basic
com
mon s
hare
s o
uts
tandin
g511
524
534
534
526
13,2
51
21,3
05
21,0
38
24,1
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19,8
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24,9
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30,3
05
30,5
55
30,8
05
29,1
42
30,9
30
36,4
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36,5
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36,7
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ted c
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13,2
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30,5
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30,8
05
29,1
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30,9
30
36,4
55
36,5
80
36,7
05
35,1
68
Ra
tio
s a
nd
Ma
rgin
s
Gro
ss M
arg
inN
MN
MN
MN
MN
MN
MN
MN
MN
MN
MN
MN
MN
MN
MN
MN
MN
MN
MN
MN
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SG
&A
as p
erc
ent
of re
venue
NM
NM
NM
NM
NM
NM
NM
NM
NM
NM
NM
NM
NM
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NM
NM
NM
NM
NM
NM
R&
D a
s p
erc
ent
of re
venue
NM
NM
NM
NM
NM
NM
NM
NM
NM
NM
NM
NM
NM
NM
NM
NM
NM
NM
NM
NM
Opera
ting m
arg
inN
MN
MN
MN
MN
MN
MN
MN
MN
MN
MN
MN
MN
MN
MN
MN
MN
MN
MN
MN
M
Pre
tax m
arg
inN
MN
MN
MN
MN
MN
MN
MN
MN
MN
MN
MN
MN
MN
MN
MN
MN
MN
MN
MN
M
Pro
fit m
arg
inN
MN
MN
MN
MN
MN
MN
MN
MN
MN
MN
MN
MN
MN
MN
MN
MN
MN
MN
MN
M
Tax r
ate
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Sourc
e:
SunTru
st
Robin
son H
um
phre
y a
nd C
em
pra
, In
c.
18
Cempra, Inc. – Statement of Operations, Annual
Ce
mp
ra, In
c. --
Sta
tem
en
t o
f O
pe
rati
on
sA
mounts
in t
housands,
exc
ept
per-
share
fig
ure
s
Bri
an
Lia
n,
Ph
.D.
212-3
19-3
728
2011A
2012A
2013E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
Glo
ba
l S
oli
thro
mycin
Sa
les
-
-
-
-
-
$31,2
81
$142,9
19
$319,7
36
$474,3
32
$588,0
54
Re
ve
nu
e
Solit
hro
mycin
reve
nues
-
-
-
-
-
$31,2
81
$130,4
14
$242,4
24
$334,0
72
$396,6
56
Taksta
reve
nue
-
-
-
-
-
-
2,1
89
8,9
35
19,1
31
31,2
23
Royalty r
eve
nue
-
-
-
-
-
-
2,5
01
15,4
62
28,0
52
38,2
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To
tal
op
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tin
g r
eve
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e-
-
-
-
-
31,2
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135,1
04
266,8
21
381,2
55
466,1
59
Op
era
tin
g e
xp
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ses:
Cost
of goods s
old
-
-
-
-
-
4,6
92
18,5
64
35,1
90
45,9
16
55,6
24
Researc
h &
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ent
16,8
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16,8
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53,1
73
47,2
34
31,7
15
33,3
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34,9
66
36,0
15
37,0
96
38,5
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SG
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68
8,4
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9,3
41
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80,0
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22
Colla
bora
tive
pro
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hare
-
-
-
-
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10,9
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45,6
45
84,8
48
116,9
25
138,8
30
To
tal
op
era
tin
g e
xp
en
ses
20,5
80
22,9
37
61,6
41
56,5
75
50,2
55
106,0
86
179,1
78
244,0
56
292,3
40
330,0
56
Inco
me
(L
oss
) fr
om
op
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ns
(20,5
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(2
2,9
37)
(6
1,6
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(56,5
75)
(50,2
55)
(74,8
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(44,0
74)
22,7
65
88,9
15
136,1
03
Oth
er
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e (
expense)
(641)
(1
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(1,2
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(1
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(1
,250)
(1
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(1,2
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(1
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(1
,250)
(1
,250)
Pre
tax
in
co
me
(lo
ss)
(21,2
21)
(24,2
26)
(62,8
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(57,8
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(51,5
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(76,0
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(45,3
24)
21,5
15
87,6
65
134,8
53
Accre
tion o
f re
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pre
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ed
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(314)
-
-
-
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-
-
-
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Incom
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ax e
xpense (
benefit
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-
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430
7,0
13
18,8
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Ne
t in
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me
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21,0
85
80,6
52
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74
Ba
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arn
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($1.2
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($2.1
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($1.6
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($1.2
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($1.5
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Dil
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($1.5
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($0.9
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$0.4
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2$2.1
5
Basic
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tandin
g526
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50,6
43
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43
52,6
43
Dilu
ted c
om
mon s
hare
s o
uts
tandin
g526
19,8
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29,1
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35,1
68
41,2
68
48,3
93
49,6
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51,9
43
52,9
43
53,9
43
Ra
tio
s a
nd
Ma
rgin
s
Gro
ss M
arg
inN
MN
MN
MN
MN
M85.0
%86.0
%86.0
%87.0
%87.0
%
SG
&A
as p
erc
ent
of re
venue
NM
NM
NM
NM
NM
NM
59.2
%33.0
%24.2
%20.8
%
R&
D a
s p
erc
ent
of re
venue
NM
NM
NM
NM
NM
106.5
%25.9
%13.5
%9.7
%8.3
%
Opera
ting m
arg
inN
MN
MN
MN
MN
MN
MN
M8.5
%23.3
%29.2
%
Pre
tax m
arg
inN
MN
MN
MN
MN
MN
MN
M8.1
%23.0
%28.9
%
Pro
fit m
arg
inN
MN
MN
MN
MN
MN
MN
M7.9
%21.2
%24.9
%
Tax r
ate
-
-
-
-
-
-
-
2%
8%
14%
Sourc
e:
SunTru
st
Robin
son H
um
phre
y a
nd C
em
pra
, In
c.
19
Investment Thesis We view Cempra as an emerging biopharmaceutical firm with clinical assets and significant upcoming catalysts. The company is developing two product candidates, solithromycin and Taksta, each of which we think provides attractive potential revenue opportunities. Our 12-month price target for Cempra is $12. We apply a 30x multiple to our probability-adjusted, fully diluted 2019 EPS estimate of $0.94 and discount six years at 15%. We believe the 30x multiple is appropriate for emerging biopharmaceuticals firms like Cempra. A 15% discount rate is appropriate given the probability adjustment applied to the company's 2019 earnings estimate. Risks to our price target include FDA delays or non-approval of solithromycin and Taksta, cardiovascular safety risks discovered with either drug that preclude them from receiving FDA approval, generic drug sales, and the possibility of new, more-effective antibiotics entering the market during the launch or sales periods for each drug.
Company Description Cempra, Inc. is a clinical-stage antibiotics company. The company's lead program is solithromycin, a novel macrolide
antibiotic in phase III development for community-acquired bacterial pneumonia (CABP). If approved, solithromycin
would represent the first oral and IV formulated macrolide to reach the market in 20 years. The company's second
drug candidate is Taksta, a novel antibiotic in phase II development for bone-related infections. Cempra's continued
focus is on both the hospital and community-acquired antimicrobial markets.
Analyst Certification I, Brian Lian, Ph.D., hereby certify that the views expressed in this research report accurately reflect my personal views about the subject company(ies) and its (their) securities. I also certify that I have not been, am not, and will not be receiving direct or indirect compensation in exchange for expressing the specific recommendation(s) in this report.
Important Disclosures SunTrust Robinson Humphrey, Inc. makes a market in the following companies at the time of this report: Cempra, Inc.
Analyst compensation is based upon quality of analysis, communication skills, stock price performance and the overall revenue and profitability of the firm, including investment banking revenue. As a matter of policy and practice, the firm prohibits the offering of favorable research or a specific research rating as consideration or inducement for the receipt of business or compensation. In addition, analysts and associated persons preparing research reports are prohibited from owning securities in the subject companies.
20
Rating And Price Target History (CEMP)
Date Rating Target Closing
No changes made in the prior three years.
Definition of Ratings SunTrust Robinson Humphrey assigns one of three ratings to stocks covered by our Research Department: Buy, Neutral, or Reduce. In addition, we assign a risk rank to each stock based on a combination of fundamental and stock volatility factors: Low = Low stock price volatility reflected by high predictability of financial results. Moderate = Moderate stock price volatility reflected by medium predictability of financial results. High = High stock price volatility reflected by inconsistent predictability of financial results. Speculative = Greatest stock price volatility reflected by low predictability of financial results. Venture = Recommended only for maximum risk oriented and well-diversified portfolios. Our ratings are a function of the risk ranking (higher return expectations for higher risk) and the absolute expected total return (price appreciation plus dividends) that result in our estimated 12-month price target. Please refer to the grid below for additional detail.
Performance Definition Scale
Total return (capital gain/loss + dividends) expected over the next 12 months
Rating Low Risk Moderate Risk High Risk Speculative
Buy Over 10% Over 15% Over 20% Over 25% Neutral -5% to 10% -5% to 15% -10% to 20% -10% to 25% Reduce -5% or Worse -5% or Worse -10% or Worse -10% or Worse
SunTrust Robinson Humphrey assigns one of three ratings to industries/sectors covered by our Research Department: Overweight, Market Weight or Underweight. These terms are relative to the appropriate S&P 500 industries/sectors. Deviations from expected price targets due to price movement and/or volatility will be reviewed by the analyst and research management on a timely basis. Price targets are only required on Buy rated stocks; the analyst may choose to have price targets on Neutral or Reduce rated stocks, but it is not required. Action taken by an investor should be based upon their personal investment objectives and risk tolerance compared to a stock’s expected performance and risk ranking.
21
SunTrust Robinson Humphrey ratings distribution as of 03/20/2013:
Coverage Universe Investment Banking Clients Past 12 months Rating Count Percent Rating Count Percent* Buy 152 44 Buy 48 14 Hold/Neutral 187 54 Hold/Neutral 26 7 Sell/Reduce 10 3 Sell/Reduce 1 0
*Percentage of Investment Banking clients in Coverage Universe by rating
Financial Definitions Average Daily Volume = The cumulative number of shares traded over 200 days ÷ number of trading sessions in that period Book Value/Share = Shareholders’ equity ÷ shares outstanding Debt/Cap. = Debt ÷ shareholders’ equity + debt Debt/EBITDA = Long-term debt ÷ earnings before interest, tax, depreciation, and amortization Dividend/Yield = Annual dividend per share ÷ share price Est. 5-Year EPS Growth = Expected 5-year CAGR from latest actual Float = Number of shares outstanding available for public trading Free Cash Flow/Share = Trailing four quarters cash flow from operations - yearly CAPEX ÷ shares outstanding Long-Term Debt = Loans and financial obligations extending beyond one year Net Cash/Share = Cash + liquid securities - total debt (short and long term) ÷ shares outstanding ROE (last year actual) = Net income ÷ shareholders’ equity Shareholders’ Equity = Share capital + retained earnings - treasury shares
Key Indices: DJIA – Dow Jones RUI – Russell 1000 RUT – Russell 2000 MID – S&P MidCap 400 SPX – S&P 500 SML – S&P SmallCap 600
Other Disclosures Information contained herein has been derived from sources believed to be reliable but is not guaranteed as to accuracy and does not purport to be a complete analysis of the security, company or industry involved. This report is not to be construed as an offer to sell or a solicitation of an offer to buy any security. SunTrust Robinson Humphrey, Inc. and/or its officers or employees may have positions in any securities, options, rights or warrants. The firm and/or associated persons may sell to or buy from customers on a principal basis. Investors may be prohibited in certain states from purchasing some over-the-counter securities mentioned herein. Opinions expressed are subject to change without notice. The information herein is for persons residing in the United States only and is not intended for any person in any other jurisdiction. SunTrust Robinson Humphrey, Inc.'s research is provided to and intended for use by Institutional Accounts as defined in FINRA Rule 4512(c). The term "Institutional Account" shall mean the account of: (1) a bank, savings and loan association, insurance company or registered investment company; (2) an investment adviser registered either with the SEC under Section 203 of the Investment Advisers Act or with a state securities commission (or any agency or office performing like functions); or (3) any other person (whether a natural person, corporation, partnership, trust or otherwise) with total assets of at least $50 million. SunTrust Robinson Humphrey, Inc. is a registered broker-dealer and a member of FINRA and SIPC. It is a service mark of SunTrust Banks, Inc. SunTrust Robinson Humphrey, Inc. is owned by SunTrust Banks, Inc. ("SunTrust") and affiliated with SunTrust Investment Services, Inc. Despite this affiliation, securities recommended, offered, sold by, or held at SunTrust Robinson Humphrey, Inc. and at SunTrust Investment Services, Inc. (i) are not insured by the Federal Deposit Insurance Corporation; (ii) are not deposits or other obligations of any insured depository institution (including SunTrust Bank); and (iii) are subject to investment risks, including the possible loss of the principal amount invested. SunTrust Bank may have a lending relationship with companies mentioned herein.
22
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ADDITIONAL INFORMATION IS AVAILABLE at our website, www.suntrustrh.com, or by writing to: SunTrust Robinson Humphrey, Research Department, 3333 Peachtree Road N.E., Atlanta, GA 30326-1070