Motif Bio a tempting punt

In the US, the government has attempted to increase the attraction of the antibiotic market by launching initiatives such as the GAIN Act, which gives extended periods of exclusivity for new antibiotics. As a result, the market is growing and worldwide antibiotic sales are expected to reach $40bn by 2020. One company hoping to gain a slice of that market is Motif Bio (MTFB), which joined Aim in April 2015, raising £23m in the process, including £22m from institutional backers Invesco and Aviva at 50p.

Motif Bio has one drug candidate, a novel antibiotic known as iclaprim. While many antibiotics attack the cell wall of bacteria, iclaprim targets a process that occurs inside the bacteria cell which is crucial to keeping it alive. By attacking this process, iclaprim is effective in killing bacteria, including 'super bugs' that have developed resistance to commonly used antibiotics. Motif is developing iclaprim as a treatment for acute bacterial skin and skin structure infections (ABSSSI) and hospital-acquired bacterial pneumonia (HABP), which have developed a resistance to many antibiotics. In the US, ABSSSI and HABP together affect approximately 3.4m people a year.

Of course, investing in small-cap pharma, especially a company with a single drug, is notoriously risky, but Motif Bio is in a unique and highly favourable position, which substantially de-risks the investment case. Iclaprim has already been tested on more than 500 patients. The drug was formerly owned by a Swiss company, Arpida, which completed clinical trials and proved iclaprim is a safe and more effective treatment for ABSSSI and HABP than the current standard treatment.

Changes in the US Food and Drug Administration (FDA) targets for iclaprim meant that Arpida, lacking the will to restart its trials, was forced to abandon it, but Motif Bio has recently been granted approval by the FDA to start its own phase three clinical trials. In addition to already knowing the drug is both safe and effective, Motif also owns 600kg of stock, which was bought from Arpida along with the rights to iclaprim. That's enough for clinical trials and commercial launch.

Motif has recently started to administer the drug to itsABSSSI patient population and trials are expected to last 18 months, meaning the commercial launch of iclaprim for ABSSSI is expected for early 2018. The process is expected to cost between $75m and $85m, therefore Motif will have to raise more money. For this it has gone back to supportive institutional backers.