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ContraFect (NASDAQ:CFRX) is a clinical stage company developing a novel approach to treating serious infections. There is growing concern about multi drug-resistant bacteria and a tremendous need for new anti-infectives to be developed. There hasn’t been a new class of antibiotics discovered since 1984 and pharmaceutical companies have shied away from researching new antibiotics. ContraFect’s approach is a paradigm shift in that it is using direct lytic agents, also called lysins which are enzymes that break the cell wall and kill bacteria in seconds to minutes. They offer a low propensity for resistance and perhaps even more importantly, are effective against biofilms which is a limitation of standard antibiotics.
CF-301, also known as Exebacase is ContraFect’s lead program. CF-301 was discovered in the laboratory of Dr. Vincent Fischetti and has been licensed from Rockefeller University. Lysins are specific for particular bacteria and CF-301 is targeted against both methicillin sensitive staph aureus (MSSA) and methicillin resistant staph aureus (MRSA). MRSA is a particularly difficult to treat pathogen with few treatment options. According to the University of Chicago, each year 90,000 Americans suffer from invasive MRSA and about 20,000 die. Phase 2 testing of CF-301 has been completed to assess whether Exebacase could be used as an adjunct to the standard of care antibiotics such as vancomycin which are currently employed in the treatment of patients with serious drug resistant staph infections.
Phase 2 Data looks Promising
The Phase 2 trial which has been completed involved 115 patients with complicated bacteremia with or without endocarditis caused by MRSA or MSSA. These patients were all receiving the standard of care antibiotics and the treatment group also received Exebacase. According to the company, overall, there was a 70.4 % response rate in patients who also received exebacase versus a 60% response rate for patients receiving antibiotics alone. This differential would likely need to be greater to support a broad approval in all staph bacteremia as it didn’t reach the level of statistical significance. However, the 70.4% response rate is more impressive when you consider that there were more than double the number of patients who had left sided endocarditis in the Exebacase treatment group vs the standard of care only group (15.5% vs. 6.7%). This is significant because left sided endocarditis is known to be very difficult to treat. Thus, if those patients were dispersed into both groups evenly, there may have been an even greater disparity in efficacy between the two groups.
Most importantly, Phase 2 showed that Exebacase has impressive efficacy against MRSA bacteremia for which there are few options. In the last half century, new antibiotics have been compared to vancomycin and daptomycin-the standard of care and none has been shown to be superior. Currently, daptomycin and vancomycin are the only two antibiotics approved for MRSA bacteremia. ContraFect’s Phase 2 data shows that adding Exebacase to the standard of care antibiotics can dramatically increase efficacy in the treatments of MRSA bacteremia. “Of note, among all patients infected with MRSA, a 42.8% higher responder rate was observed in Exebacase-treated patients compared to those treated with antibiotics alone (74.1% compared to 31.3%, respectively (p=0.010)”. The 31 percent response rate is consistent with other studies and shows the enormous need for more effective treatments for MRSA. Lastly, the phase 2 trial showed that exebacase demonstrated an excellent safety profile.
Onward and Upward Toward Phase 3 – What Indications Would an FDA Approval Include?
Results for Phase 2 were promising, particularly in the treatment of MRSA for which there is enormous need for more effective treatments. Thus in January, ContraFect began to enroll patients in the Phase 3 trial which could result in an FDA approved product. The FDA agreed that if positive efficacy and safety data is obtained, this study may be sufficient for an approval. The approval could be for staph bacteremia due to MRSA or bacteremia caused by all staph aureus including MSSA.
The DISRUPT study of Exebacase will enroll approximately 350 patients who have bacteremia, including right sided endocarditis, caused by staph aureus. (Left sided endocarditis patients will be excluded from this study.) Patients will be placed into two groups-one that receives standard of care antibiotics and the other which receives standard of care antibiotics plus Exebacase. The study’s primary endpoint will be the response of the subgroup of patients with MRSA bacteremia including right sided endocarditis. Secondary endpoints will be clinical response at 14 days for all patients with staph aureus bacteremia, 30 day mortality in MRSA patients, and clinical response rates at 30 and 60 days in all patients. There will be measures of length of stay in the ICU and in the hospital as well as readmission rates hoping to show the economic benefit of reducing hospital costs due to a robust clinical response. Once 60 percent of the patients are enrolled and treated, a futility analysis will be conducted to confirm that the data is supporting an approvable product. The goal of the Phase 3 DISRUPT trial is to show superiority over the standard of care.
According to Roger Pomerantz, MD, the CEO of ContraFect, had you removed patients treated outside the US and removed patients with left sided endocarditis from the Phase 2 data, Exebacase would have shown statistically significant superiority over the standard of care antibiotics and hit all endpoints, including MSSA. The phase 3 trial is designed to show this. Dr. Pomerantz who spoke at the Biotech Showcase believes that a broader label for all staph bacteremia is possible.
Would Payers Be Willing to Pay a Premium Price for Exebacase?
Staph bacteremia is an extremely dangerous infections with high mortality rates if not treated aggressively. The mortality rate with standard of care antibiotics is 30 percent. These infection tend to occur in patients who are extremely sick with multiple comorbidities so they are often very costly to care for. Additionally, the longer a patient has the infection not clear, the greater the complications and the longer the hospitalization at a substantial cost to insurers. Given the high costs of hospitalization, the cost of Exebacase would likely be a fraction of the daily hospital rate. According to Dr. Pomerantz who spoke at the PiperJaffray Healthcare conference in early December of 2019, in Phase 2, they saw a four days decrease in hospital stay in Exebacase treated MRSA patients. The hope is that the Phase 3 will replicate this outstanding efficacy and cost savings data justifying a premium price while also saving lives.
How Big Are the Market Opportunities?
Exebacase’s patent would not expire until 2032 allowing for a decade of sales. There are 200,000 cases of staph bacteremia in the US annually according to ContraFect’s assessment. 2017 data from the CDC cited a lower but still very significant figure- 120,000 bloodstream infections annually due to staph. If the Phase 3 data is consistent with the Phase 2 data, there could be an FDA approval for MRSA bacteremia or bacteremia caused by both MRSA and MSSA. An approval for MRSA bacteremia is likely but the broader approval is not nearly as likely. It is estimated by ContraFect that peak sales of Exebacase for bacteremia due to MRSA would be as high as 700 million dollars annually. If Exebacase is shown to confer a benefit in all patients with staph bacteremia, peak sales could reach as high as 1.4 billion in the US.
There are other indications such as chronic prosthetic device infections where Exebacase may also be useful. Four patients in France with longstanding prosthetic joint infections that have not responded to standard treatments have been treated with Exebacase with promising results. Exebacase’s activity against biofilms makes it uniquely effective in these types of infections because standard antibiotics can’t penetrate the biofilms.
The company’s CEO is Roger Pomerantz, MD. He is an Infectious Disease specialist who did his post graduate work at Massachusetts General Hospital, Harvard and MIT. He has been involved in the development of twelve drugs and has worked at Merck and Johnson & Johnson. His goal is to keep ContraFect narrowly focused on developing innovative therapies for serious infections. He is committed to conducting superiority studies which prove that the therapy is not equal but better than the standard of care.
Money Problems/Cash Burn/Slow Execution
ContraFect has approximately 32 million dollars on hand as of December 2019 and it is estimated they will require 50 million to complete the Phase 3 study so dilution is a serious risk for shareholders. ContraFect has recently raised funds to initiate their Phase 3 study and it should be sufficient to fund operations though the third quarter of 2020. Pfizer invested recently which validates that the data is positive and is now the largest shareholder. However, it is not clear where funding will come from to complete Phase 3. Recently, the company has been able to secure grant funding to move their gram negative and amurin peptide candidates forward. These candidates are in preclinical testing for both gram positive and gram negative organisms and it is expected that there will be a new IND filed in 2020.
The company has a history of slow execution so this poses an additional risk for investors. The Phase 2 study, which only enrolled a third of the patients that will be enrolled in Phase 3 took almost 2 full years to complete. Although the company has not given a target date for the completion of Phase 3, late 2021 is a reasonable target date. Even with Fast-Track FDA status, Exebacase would not likely be commercially available until mid 2022. Delays add to the cost and limit the value of the patent so the failure to execute on enrolling study subjects quickly is a risk.
Additionally, as this is a product for hospitalized patients, hospitals would need to have their Pharmacy & Therapeutics committees review the drug and add it to the formulary so that it is stocked in the hospital pharmacy. This process would further delay utilization and sales would not likely fully ramp up until 2023 at which time the company could quickly become profitable if they execute well. Partnering with or licensing it to a larger company with a sales force would likely speed adoption.
ContraFect’s stock has been extremely volatile – trading in the trailing 52 weeks between .27 and 1.34. Recently, it underwent a 10 to 1 revenue split and is trading at 7.40. The stock fell dramatically a year ago when data was released indicating that Exebacase may not offer an efficacy advantage in all staph bacteremia infections. The stock soared after Pfizer invested in December of 2019 and the company raised additional capital needed to begin Phase 3 testing. It is currently trading around 6.80 and has a market cap of 104 million. The market cap of approximately 104 million dollars should be contrasted with a conservative estimate of peak sales of 500 million dollars for MRSA bacteremia. If you consider peak sales for MRSA at 500 million or for all bacteremia at 1.4 billion annually and then adjusted downward for both the probability of success and the risk of dilution, the stock is currently priced for a very low probability of success.
Grey Sky Scenario/Risks
Phase 3 data is the determinate of the trajectory of ContraFect. If Phase 3 results fall short of expectations, ContraFect will be in serious trouble with no other revenue stream in any reasonable timeframe as all other assets are at the pre-clinical stage. Given the 43 percent greater efficacy in the Exebacase treated group with MRSA in Phase 2, it would be surprising not to see a result with a statistically significant advantage in this group of patients. However, this is the risky world of biotech with binary outcomes and if there is a poor outcome in Phase 3, a precipitous drop in share price would be expected. The more likely risk may be that the MSSA results don’t show statistically significant superior efficacy limiting the commercial opportunities for Exebacase. Shareholders may get an indication when a futility assessment is done after 60 percent enrollment has occurred. This may be the next inflection point for the company.
Blue Sky Scenario
A blue sky scenario would be that Phase 3 data is identical to Phase 2 data and the company gets an indication for MRSA bacteremia. The sunniest outlook would be a label expansion which would include all staph bacteremia increasing the potential for peak earnings to reach 1.4 billion. If either of these scenarios play out, ContraFect is undervalued. A buy out or a marketing agreement from a big pharma player with a sales force in place to maximize sales is another possibility that would likely reward shareholders of ContraFect. The futility readout for Exebacase in Phase 3 could easily bring shares to $2 as it would suggest the data will support an approval. An FDA approval at a later date for MRSA and or MSSA with a plan for marketing could drive the price to $3 inputting a market cap of 1x peak sales of the MRSA indication.
ContraFect is a high-risk/high-reward investment for a patient investor with a two-year time frame.
Disclosure: I am/we are long CFRX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.