A look at the reward side for the now-derisked Motif Bio

As a holder I was ecstatic to read the very good data yesterday from Motif Bio's (LON, NASDAQ: MTFB) first phase 3 trial for its novel antibiotic iclaprim.

I've covered Motif before (background reading) and have been amazed how the SP has languished since the Nasdaq IPO last year. The historical data always indicated a very high likelihood of good data in this trial. With such a low risk premium why was the market still pricing the stock so low?

And ironically, with the good data from Revive-1 pretty much a given, then it's probably no surprise the share didn't bag in one day when the good data was announced.

But why can you still buy Motif Bio at 35p?

Of course there is still a small funding shortfall, announced during the US IPO process, to get through to New Drug Approval (NDA) with the Federal Drug Administration (FDA).

But the potential upside here is massive. I'm usually sceptical of high broker targets but in this instance I think the 90p-125p range this is covered at is on the low side.

Pharma acquisitions typically start at around £300 million and can run into the billions. But before we get carried away with acquisition talk there still needs to be demonstrable value in iclaprim.

And that value comes about due to the complexity of treating ABSSSI infections in patients who have kidney problems, as well as patients with a few other complications.

The current standard treatment, vancomycin, is described as a 'terrible drug' for these patients by Dr Maccers, who explained to me how treating such patients involves taking regular blood samples, which then require testing, with the results of those tests being used to recalculate the vancomycin dose.

All this extra time monitoring, testing and recalculating by doctors means the treatment becomes far more costly to administer. It also takes, on average, longer to treat these patients, leading to longer hospital stays and increased costs in the provision of bed space.

Iclaprim has low nephrotoxicity, which basically means patients with kidney problems can be treated in the same way as everyone else. The trial safety data published yesterday confirms fixed-dose suitability for all patients.

So on to the business case, which is the "estimated 26% of 3.6 million ABSSSI patients hospitalised annually in the US" with kidney disease (source).

Based on an estimated drug price of $3,500 per course for iclaprim, clinicians indicate it would make sense on cost, safety and efficacy grounds to use Motif's new therapy, once approved.

$3,500 as an estimated cost of treatment with a market targeting up to 900,000 patients annually puts $1bn annual revenue a realistic target for Motif.

Yes, there is still a remote chance the whole process will be upset by a surprise in the second trial, due in H2 this year. But the Revive-1 data is so solid that, statistically, this chance is now much smaller than 5%.

Therefore the chance of success meeting trial endpoints is now higher than 95%.

So we're looking at very high probability of successful approval with the FDA coupled with a very attractive target market that could realistically see $1bn annual revenues in short order. Possibly more, and this is just from ABSSSI patients with kidney disease in US hospitals.

There's also a new trial treating bacterial pneumonia planned, adding to the potential revenue, as well as the possibility - likelihood, even - of European approval being sought.

As a possible acquisition target for a Big Pharma co with established sales and distribution they could be looking at even better numbers - with very few rival drugs targeting this opportunity a big company might realistically target $2bn+ from ABSSSI treatments @67% share of the target market, with HABP on top.

Have a listen to what the Motif CEO has to say: