A potentially devastating public health crisis has been developing over the past 30 years and surprisingly little has been done to avert it. I'm referring to the evolution of "superbugs," or multidrug resistant strains of microbes like infectious bacteria that are invading hospitals and other facilities, even the locker rooms of popular sports teams.
Despite this growing public health concern, most pharma companies abandoned research into new antibiotics long ago. The problem is economic: New antibiotics cost roughly the same amount to develop as, say, a cancer drug, but they are nowhere near as profitable.
FDA Approval of Dalvance is an encouraging development
The FDA last week approved the first drug developed under the Qualified Infectious Disease Product, or QIDP, designation: Durata Therapeutics' (NASDAQ: DRTX) Dalvance. The QIDP designation was signed into law in 2012 to encourage development of new products to combat multidrug resistant microbes.
Dalvance is indicated as a treatment for acute bacterial skin and skin structure infections, or ABSSSI, caused by bacteria such as Staphylococcus aureus (including methicillin-susceptible and methicillin-resistant strains) and Streptococcus pyogenes. Under the QIDP banner, Dalvance will receive an additional five years of market exclusivity and was given priority review status.
According to the company, ABSSSI infection rates increased an astronomical 176% from 1997 to 2009 in hospitalized patients, with 59% of these infections being MRSA, showing the substantial need for new treatments.
Economic questions remain
The need for new antibiotics is driven, in part, by the rapid evolution of drug-resistant strains of bacteria. So a major question mark that will hang over Dalvance is the drug's clinical shelf life. Will it remain widely used long enough to justify its nearly decade-long development that encompassed a noteworthy 21 clinical trials? Will Dalvance's longevity, or lack thereof, as a commonly used treatment allow Durata to pay off its debts and milestone obligations under existing agreements with Pfizer and PDL BioPharma?
I don't know the answers to these questions, but the fact that Durata only sports a market cap of $449 million post-approval suggests investors are being cautious. Indeed, these are issues that plague the development of new antibiotics in general and could indirectly lead to the outbreak of an infectious disease that is resistant to most forms of antimicrobials.
Another issue to consider will be the potential competition from Cubist Pharmaceuticals' (CBST.DL) rival antibiotic Sivextro, which recently completed a phase 3 trial. Sivextro can be taken orally and its course of treatment is only six days, compared to Dalvance's eight days. The only downside is that Sivextro is taken daily, while Dalvance is administrated just twice during the treatment period. How these differences will influence market dynamics is another question that will have to be answered in time.
Foolish wrap-up
Shares of Durata have risen 139% over the past year in anticipation of this approval. Yet the company's tiny market cap in comparison to the rapidly growing market Dalvance looks to target suggests the stock may still have upside potential.
But Durata only has enough cash and loan agreements in place to get through about the first quarter of 2015. Not only is the company footing the bill to launch Dalvance, it is also initiating additional late-stage clinical trials for the drug later this year. Durata will have to raise additional funds in the next 12 months to fund all these activities. So while the approval of Dalvance is certainly welcome news to clinicians fighting ABSSSI, I think a wait and see strategy might be best with this stock for the time being.
