Motif annual results:muddying waters with proposed HAPB trial yet path to market now tantalisingly close

Motif Bio (LON:MTFB, NASDAQ:MTFB) released their annual results and on first glance from an investor's perspective they're not pretty. The company has a cash deficit to get through the coming year and yet is already talking about starting a second trial, INSPIRE, to measure the efficacy of iclaprim in treating Hospital Acquired Bacterial Pneumonia (HAPB).

But a closer inspection reveals the numbers to be far better than the headline, and once the proposed new INSPIRE trial is taken out of the equation the cash position is nowhere near as bad as it first looks and Motif seems tantalisingly close to hitting that home run and getting iclaprim to market - possibly as soon as H1 next year - as an ABSSSI treatment.

Yes, I think the company has a realistic chance of getting marketing approval from the FDA within 12-14 months from now.

So what about HAPB/INSPIRE? I've already discussed the potentially massive market for iclaprim treating ABSSSI patients who have insufficient kidney function - cornering 30% of that market alone could lead to annual revenues touching $1 billion. Gaining marketing approval for treating HAPB would increase that market by around 65%.

HOWEVER -  HAPB and the INSPIRE trials are not key to success here, and postponing them or at least taking them out of the cash flow equations makes Motif look very attractive indeed at today's price.

The big red flag from today's results is the $39.6m loss for 2016.

BUT by far the bulk of that loss ($34.8m) is associated with the clinical trial REVIVE. 2016 was exceptional in that it saw both Revive-1 and Revive-2 running in parallel. Upfront costs for both REVIVE trials would have been paid in the period.

Revive-1 is now complete so that burn is already reduced. Revive-2 is 80% complete so Clinical Research Organisation (CRO) costs will be minimal within 2 months when we expect to see Last Patient Out (LPO) notification for REVIVE.

Plus 2016 saw additional costs associated with the NASDAQ listing.

So, as I said, taking INSPIRE out of the equation and 2017 should see significantly lower costs. The company had $21.8m in the bank at the end of the period.

Another red flag though is the $18.6m liabilities. Taken from the remaining cash figure leaves not much left in hand.

BUT YET AGAIN, and somewhat unusual for an AIM company annual result, the detail significantly improves the outlook.

About halfway through this large report (111 pages listed on the index - not a typical AIM audit!) we see that $5,798,058 of the stated $18.6m liabilities is a derivative liability not becoming due till at least 2019 (furthermore it's in relation to the issuance of ADR warrants and might never become due, should Motif retain its listing).

So the liabilities becoming due in 2017 are $12.8m and the net cash position at the end of the period stands better at  $9m once liabilities are deducted from the end-of-period cash figure.

On those liabilities, the audit report by PWC (again atypical for an AIM company to be using one of the Big Four for its annual audit) contains disclosures in accordance with the US Sarbanes‑Oxley Act, meaning some of the usual "hidden costs" tricks of many AIM companies are off the table.

It appears as though a large part (and perhaps even all) of the upcoming clinical research costs associated with the REVIVE trials would already be contracted with the CRO,  and as such are included as liabilities.

So whilst the company does probably still need some cash, that deficit is far less than apparent on first scan of the headlines.

Furthermore with Revive-2 now 80% enrolled we are looking at the clinical phase of that trial coming to a completion in the next 2-3 months, with data another 2-3 months behind that.

With iclaprim already granted FDA Fast Track status the Federal Drug Administration will assign Priority Review status once the application is submitted and should have a decision within 6 months of the application being filed.

So the overall position of Motif has never been better after data from its first ABSSSI trial, Revive-1, was very good.

With Revive-2 at 80% enrolment the FDA New Drug Application (NDA) should be submitted by the end of this year, with a decision possible within H1 2018. The company really is that close to success here.

And the very fact Motif is now discussing a potential start to INSPIRE perhaps shows underlying confidence that the company will secure the necessary funding, perhaps from a regional licensing deal or joint venture arrangement.