3 Reasons Why Cempra, Inc. Rallied 10.99% in May

By Markets Fool.com

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What:Shareholders ofCempra, a clinical-stage biopharma focused on next-generation antibiotics, had a great May. Its stock rose more than 10% during the month, according to data fromS&P Global Market Intelligence.

CEMP data by YCharts.

So what:The share price jump looks to be primarily caused by three main news items.First, the company reported results from its first quarter. Net loss for the period came in at $29.4 million, or $0.61 per share, which was slightly better than the $0.63 loss that Wall Street expected.Management stated that Cempra ended the quarter with more than $223 million in cash on its books, which it believes should be enough to fund operations well into 2017.

Second, management presented clinical data on solithromycin IV at the 2016 American Thoracic Society International Conference. The data confirmed that IV to oral solithromycin was non-inferior to IV to oral moxifloxacin in treating community-acquired bacterial pneumonia, or CABP. Moxifloxacin is made by Bayer AG, and is a commonly prescribed drug used to treat CABP.

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These results offer patients and providers a lot of hope since pneumonia has started to develop a strong resistance rate to older antibiotics. In fact, moxifloxacin-resistant pneumonia rates canexceed 50% in the U.S., which speaks volumes about the need for next-generation antibiotics.

Finally, Cempra and its Japanese partner, Toyama, announced solid phase 2 results from a trial evaluating the efficacy and safety of solithromycin in Japanese patients with mild to moderate CABP. The study showed that patients who usedsolithromycin as a single or divided dose showed a higher cure rate than patients who only used levofloxacin, the current standard of care.

Understandably, Cempra's management team was very excited by the results and look forward to continuing clinical development in Japan, which is the second largest antibiotic market in the world.

Now what:The year ahead should be an exciting one for Cempra's investors. In April, the company competed its rolling submission of two versions of solithromycin for Food and Drug Administration approval in treating CABP. Since the compound has already been granted qualified infectious diseases product designation, investors should only have to wait eight months for a decision.

Management is confident about the drug's chances of winning approval, so it has started to add to its head count in preparation for a commercialization launch next year. Since CABP is the leading cause of death from infection in the U.S., it isn't much of a stretch to say that solithromycin could hold significant market potential if it wins approval. Some analysts believe that the drug could eventually produce sales in excess of $2 billion worldwide.

Even after including May's rally, Cempra's market cap is still under $1 billion. That might be far too low of a number if the company can win regulatory approval for solithromycin, so if all goes well, it wouldn't surprise me one bit to see the shares' strong market performance continue in the months ahead.

The article 3 Reasons Why Cempra, Inc. Rallied 10.99% in May originally appeared on Fool.com.

Brian Feroldi has no position in any stocks mentioned.Like this article? Follow him onTwitter where he goes by the handle@Longtermmind-set.The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.