Between July 28 and Oct 22, Cempra, Inc. (NASDAQ:CEMP) lost 66% of its market capitalization. Over the last couple of weeks, however, the company has gained 80% on its October lows, and looks to be set to continue these gains as we head into the middle of the week. Despite the last two week’s gains, however, the stock is still discounted on highs, and we believe this discount represents a great opportunity to get a cheap exposure to what could be a high growth biotech over the next 24 months. Here’s why.

Cempra’s Pipeline

First, the company. Cempra has two clinical stage candidates in its pipeline: Solithromycin and TAKSTA. The former is its primary and the latter its secondary focus. Both are antibiotics, and both have the potential to be real blockbusters in their respective indications. Solithromycin’s primary indication is community acquired bacterial pneumonia. (CABP). The drug is what’s called a macrolide – which is a gram positive therapy that physicians prescribe to treat respiratory tract and soft tissue infections (both of which are associated with CABP). There is a real problem with resistance in the antibacterial space. A pneumococcus is (essentially) just another word for a bacterium that causes pneumonia. Pathogenic pneumococci are the harmful type (most bacteria is harmless) and more than 40% of pneumococci are resistant to the currently available antibiotics. Cempra is hoping to fill this 60% differential with solithromycin.

The drug has already proven efficacy in two phase III trials, and a third is currently underway – data from which the company presented at the CHEST event at the end of October. Once again, the treatment has proven efficacy. We are now at the stage where the only real gating to an NDA submission for this indication is – as stated by the company in its latest earnings conference call – time. Cempra has priority review, meaning it can submit portions of its NDA as and when they complete, rather than having to wait for the full thing to complete before submission. As the company processes the data from its trials, it can submit it to the FDA for review. By the time the company completes the final elements of the submission, therefore, the FDA will already be well aware of the safety, tolerability, pharmacokinetics etc. of solithromycin, and we could get a quick approval.

The second pipeline treatment, TAKSTA, is just as promising. The drug is already approved across the majority of Asia, Europe, Canada, South Africa to name but a few (not as TAKSTA, but instead as various formulations of TAKSTA’s active compound fusidic acid). Cempra has exclusive rights to the drug in the US, and the company is currently preparing to kick of a US based double blind phase III for an acute bacterial skin and skin structure infections (ABSSSI) indication. The ABSSSI trial should start before the end of the year. In phase II for this indication we saw excellent efficacy and there were very limited adverse events – something we expected due to the nature of the already approved in any countries therapy.

Opportunity

Basically, we have a company here that has two products that have the potential to be billion dollar therapies; Cempra has stated it will price both in the hundreds of dollar range, which is lower than some recently approved antibiotics, but the market is so huge that the company doesn’t need to price high to generate big revenues. This is a space that a number of the big names – Pfizer Inc. (NYSE:PFE) and Baxalta Incorporated (NYSE:BXLT) to name two – have trued and failed in, so there may also be the potential for a partnership on the commercialization aspect of both drugs as big pharma has already expressed interest in exposure to the non-resistant antibiotics. Cempra has stated that it doesn’t require a partnership (i.e. it can fund and staff the commercialization itself) but if the terms are right, the backing of a big player won’t hurt its chances).

Catalysts

So what are we waiting on as near term catalysts? Well, we’d like to see the topline from the data presented at CHEST – when the company reports this formally we will likely see some upside momentum. Also, the kicking off of the aforementioned phase IIIs (one before the end of the year and one during 2016) should do similar. All said, definitely one to keep an eye on – especially at its current valuation of a little over $1.2 billion.