Cempra Inc: Why CEMP Stock Is in Total Self-Destruct Mode

cempra stockWhat’s Up with Cempra’s Massive Decline? 

Cempra Inc (NASDAQ:CEMP) stock has burned to the ground, dropping 56% today after warnings from the U.S. Food and Drug Administration (FDA) that its experimental drug causes a higher rate of chemically induced liver damage compared to alternative treatments.

The FDA report called the potential for liver damage from the drug a “significant safety signal.” This report comes two days before outside experts meet to discuss whether to approve the drug. While the FDA is not beholden to the experts’ recommendations, they often do follow the panel’s advice.

The drug in question, solithromycin, is related to an infamous Sanofi SA (ADR) (NYSE:SNY) drug called “Ketek.” That drug gained notoriety in 2004 when it was approved by the FDA, only to be later linked to dozens of serious and fatal liver problems and, subsequently, mostly withdrawn from the market.

The Ketek episode damaged public perception about the FDA, prompting a U.S. Congressional investigation and accusations from within the FDA that the agency did not heed the concerns of its own reviews. The FDA was also alleged to have dismissed suspicious clinical data that was later proved to be, pardon the pun, doctored. (Source: “FDA highlights liver safety issues in Cempra drug review,” Reuters, November 2, 2016.)

All these factors contributed to the abysmal showing of CEMP stock today.

Reuters reports that Alan Carr, an analyst at Needham & Company, LLC, said that he sees the drug generating peak worldwide sales of $2.0 billion if approved. In a research note, Carr wrote that he expects the drug to be approved eventually, but could face a request for a large safety trial before its release.

In Japan, however, Toyama Chemical Co., Ltd., a subsidiary of FUJIFILM Holdings Corp. (ADR) (OTCMKTS:FUJIY), paid $10.0 million in order to proceed with phase 3 studies of the drug. Japan is the world’s second-largest antibiotic market, according to the release. Toyama ultimately hopes to release the drug in Japan, but may face similar obstacles in its own trials if the liver issues persist, which could further impact CEMP stock. (Source: “Cempra Receives $10 Million Milestone Payment From Toyama Chemical (a Subsidiary of FUJIFILM Holdings Corporation) as Solithromycin Progresses to Phase 3 Studies in Japan,” Cempra Inc, November 1, 2016.)

Another day, another blow for pharmaceutical companies, this one having less to do with price hikes, and more to do with good old-fashioned potentially fatal side effects. For the time being, CEMP stock received a terminal diagnosis today.

Check out our coverage of Valeant Pharmaceuticals Intl Inc (NYSE:VRX) stock’s recent dips and surges to keep up-to-date on all your pharmaceutical stock needs.

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