In a Sept. 11 research note, analyst Ed Arce reported that H.C. Wainwright & Co. launched coverage on Melinta Therapeutics Inc. (MLNT:NASDAQ) with a Buy rating and a $14 per share price target. The stock of this antibiotics developer is currently trading at around $4.62 per share.
The company is primarily focused on its four marketed drugs: Orbactiv, Minocin, Vabomere and Baxdela, the latter two having been approved and launched recently.
Management estimates the peak sales potential of this drug suite is $1 billion. "We believe this scenario is a plausible projection (if perhaps near the high end), especially if Baxdela is approved for community-acquired bacterial pneumonia," Arce indicated. H.C. Wainwright, however, has based its target price on a more conservative peak sales forecast of $706 million, occurring in 2026.
Arce posited that product growth trends, a low valuation, several near-term catalysts and a healthy pipeline make Melinta attractive. "We view the 68.3% share price drop since March 8 as overdone and believe, at current levels, Melinta offers a compelling risk/reward, both in the near term and over the longer term," he added.
The analyst suggested those interested in investing in Melinta buy sooner rather than later, "before the growth trends become obvious." For example, growth drivers already in place include:
1) The addition this summer of 58 sales representatives, the full effects of which management anticipates in Q4/18.
2) The completion in August of cross-training the 170 sales representatives on all four products.
3) The Centers for Medicare & Medicaid Services having granted Vabomere a new technology add-on payment effective Oct. 1, providing up to 50% reimbursement ($5,544 at most) for Medicare patients plus the standard diagnosis-related group payment.
Another reason to buy now is Melinta's "near rock bottom" valuation, wrote Arce. The company's market cap and enterprise value are lower than what the company paid to acquire The Medicines Co.'s infectious disease business in January. "Several one-time items in Q2/18 related to the infectious disease business integration and optimization may be masking the true underlying growth and leverage of the business," he added.
As for catalysts, Melinta has three expected in the near term, Arce noted:
1) Topline results by year-end 2018 for the Phase 3 community-acquired bacterial pneumonia study of intravenous-to-oral Baxdela versus the active comparator moxifloxacin/linezolid. If positive, the next steps are filing a supplemental new drug application in Q1/19, a six-month priority review subsequently and, finally, commercial launch in late 2019.
2) A European Medicines Agency decision on Vabomere, likely in Q4/18. "We believe approval is highly likely, with an announcement probably in November." This approval "would enable and accelerate the third near-term milestone, which is to execute on ex-U.S. partnership(s) for Vabomere, Orbactiv and Minocin."
3) Approval decisions from respective regulatory agencies, expected in Q1/18, for Melinta's partners to market Baxdela in the European Union and in Argentina.
Melinta's pipeline remains robust, with the company continuing to work on advancing its drug candidates. They include its lead pyrrolocytosine compound and its Phase 2 radezolid, a novel oxazolidinone class antibiotic for acne vulgaris and, on a qualified infectious disease product basis, for bacterial vaginosis.
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Disclosures from H.C. Wainwright & Co., Melinta Therapeutics Inc., Initiating Coverage, Sept. 11, 2018
I, Ed Arce, certify that 1) all of the views expressed in this report accurately reflect my personal views about any and all subject securities or issuers discussed; and 2) no part of my compensation was, is, or will be directly or indirectly related to the specific recommendation or views expressed in this research report; and 3) neither myself nor any members of my household is an officer, director or advisory board member of these companies.
None of the research analysts or the research analyst’s household has a financial interest in the securities of Melinta Therapeutics, Inc., Achaogen, Inc., Nabriva Therapeutics plc, Paratek Pharmaceuticals, Inc., Spero Therapeutics, Inc. and Tetraphase Pharmaceuticals, Inc. (including, without limitation, any option, right, warrant, future, long or short position).
As of August 31, 2018 neither the Firm nor its affiliates beneficially own 1% or more of any class of common equity securities of Melinta Therapeutics, Inc., Achaogen, Inc., Nabriva Therapeutics plc, Paratek Pharmaceuticals, Inc., Spero Therapeutics, Inc. and Tetraphase Pharmaceuticals, Inc..
Neither the research analyst nor the Firm has any material conflict of interest in of which the research analyst knows or has reason to know at the time of publication of this research report.
The research analyst principally responsible for preparation of the report does not receive compensation that is based upon any specific investment banking services or transaction but is compensated based on factors including total revenue and profitability of the Firm, a substantial portion of which is derived from investment banking services.
The Firm or its affiliates did not receive compensation from Melinta Therapeutics, Inc., Achaogen, Inc., Nabriva Therapeutics plc, Paratek Pharmaceuticals, Inc. and Tetraphase Pharmaceuticals, Inc. for investment banking services within twelve months before, but will seek compensation from the companies mentioned in this report for investment banking services within three months following publication of the research report.
The Firm or its affiliates did receive compensation from Spero Therapeutics, Inc. for investment banking services within twelve months before, and will seek compensation from the companies mentioned in this report for investment banking services within three months following publication of the research report.
H.C. Wainwright & Co., LLC managed or co-managed a public offering of securities for Spero Therapeutics, Inc. during the past 12 months.
The Firm does not make a market in Melinta Therapeutics, Inc., Achaogen, Inc., Nabriva Therapeutics plc, Paratek Pharmaceuticals, Inc., Spero Therapeutics, Inc. and Tetraphase Pharmaceuticals, Inc. as of the date of this research report.
