Expert Financial Analysis and Reporting

Investment Summary and Opinion

I attended Trius' (TSRX) CEO Jeff Stein's presentation at the BioCentury Conference in New York on April 5^th; this note summarizes some key takeaway points, particularly on how clinical trial data differentiates tedizolid from Zyvox. I think that the clinical data underlying the upcoming NDA filing for tedizolid is solid and given the desire of the FDA to expedite the development and approval of important new antibiotics per the GAIN act, I think that there is a very high probability of approval of tedizolid in the US in mid-2014 and in Europe in early 2015.

There is always the risk that something could occur in the Chemistry, Manufacturing and Controls section of the NDA that could delay approval, a not infrequent occurrence. Outside investors have little data to judge such a possibility. The only thing that I can say is that given the precision in the way that management conducted the clinical trials, they seem to have paid great attention to detail and this augurs well that there will be no CMC issues to delay approval. Also, as Trius has a partnering deal with Bayer in Asia Pacific and emerging markets it is safe to assume that resources from both companies are focused on de-risking CMC.

One of the bear arguments against tedizolid is that it is not that much differentiated from Pfizer's Zyvox (linezolid); Zyvox was the first and tedizolid is the second of the oxazolidinone class of antibiotics. In his presentation, Dr. Stein discussed one of the important toxicity issues that is linked to Zyvox. In long term dosing of Zyvox, there is a small but critical risk of irreversible optic and peripheral neuropathy that potentially may be avoided with use of tedizolid. In animal studies in which Zyvox (linezolid) gives clear signals of these toxicities, tedizolid given at higher relative doses and for longer periods of time gives no signal. Why is this important? About 40% of the usage of linezolid is off-label for long term treatment of bacteremia, osteomyelitis and prosthetic bones and joints infections. Once tedizolid is launched it is possible that much of this off label use will switch fairly quickly to tedizolid. I must point out that Trius has not shown this in human trials and cannot promote this advantage with its sales reps, but the animal data will be widely reviewed and understood by infectious disease specialists.

Another significant differentiation is that about 30% of patients eligible for treatment with tedizolid or linezolid are receiving anti-depressant or vasoconstrictor drugs that are metabolized through the monamine oxidase pathway. This is the pathway used by linezolid, but not tedizolid and because of this; linezolid is contraindicated for use with tyramine, vasoconstrictors and SSRIs (Prozac, Zoloft, et al). Based on prior clinical and nonclinical studies, tedizolid lacks these interactions at many fold its clinical exposure. It therefore appears that Trius has a compelling argument for a significant label advantage. There are a significant number of other differentiations, but these two are among the most important. I have discussed others in greater detail in previous reports.

I initiated coverage of Trius with a Buy on May 30, 2012. So far, the Company has met all of my expectations and timelines. It is on course to file an NDA in 2H, 2013 and it has been given accelerated approval status that could result in approval in the US in mid-2014. In previous reports, I have detailed my thinking as to why I believe that tedizolid can achieve worldwide sales of over $1 billion by 2020 and why I think this can support a stock price of $40+. I am not going to reiterate these arguments in this report; they can be found in other reports on my website.

Positive Data from Two Phase III Trials of Tedizolid

Trius announced positive preliminary results of the second of its phase III trials last week, ESTABLISH-2. Results from the first phase III trial, ESTABLISH-1, were reported earlier this year. ESTABLISH-1 compared tedizolid to Pfizer's Zyvox in skin infections. Tedizolid was given as a 200 mg dose once a day for six days and Zyvox was given 600 mg twice a day for ten days. ESTABLISH-2 started patients on IV doses of tedizolid and linezolid and patients were then switched at the physician's discretion to oral doses of these drugs. The course of therapy was six days for tedizolid and ten days for linezolid for each trial.

Management has to be given double thumbs up on the conduct of these clinical trials. At the time ESTABLISH-1 was started the primary endpoint required by FDA was cessation of lesion spread and absence of fever at 48 to 74 hours, but this primary endpoint has evolved to 20% or greater reduction in lesion area at 48 to 72 hours. Both ESTABLISH-1 and ESTABLISH-2 were designed to capture both endpoints prospectively. This might seem a minor thing, but I have seen companies stumble badly by not anticipating issues like this. Further complicating the situation is that the European Medicines Association (EMA) has a third and different primary endpoint; it is assessment of clinical response by investigators 7 to 14 days after the end of therapy. Again, Trius captured this endpoint prospectively as a secondary outcome in the ESTABLISH trials. The complete data set for the integrated data of the two studies will be available at ICAAC in September.

More on How Tedizolid and Zyvox Differ

In both phase III trials, tedizolid was shown to be non-inferior to linezolid. Some investors question why there is a need a new drug if it is only non-inferior to an established one. Non-inferiority trials are standard operating procedure for phase III trials of antibacterials. New antibiotics are compared to existing antibiotics that are quite effective in treating infections. By definition trials are not designed to differentiate drugs but to meet the non-inferiority endpoints showing that the new drug is as good.

Differentiation is achieved in the totality of other clinical and nonclinical studies, which Trius has done very well. Its studies have shown that: (1) tedizolid met its endpoints with 1/10 the amount of drug and approximately ½ the dosing period of linezolid, (2) tedizolid lacks the drug to drug interactions mediated through monamine oxidase that prevent the use of linezolid with tyramine, vasoconstrictors and SSRIs even when tedizolid is dosed up to 30x the clinical dosage; (3) tedizolid has less myelosuppression (first shown in animal models and in a 21 day clinical study vs. linezolid); (4) tedizolid does not produce optical and peripheral neuropathies when dosed in animal studies for nine months at up to 6x human clinical exposure, and (5) tedizolid is active against Cfr-MRSA the most concerning linezolid resistant strain in which the resistance element is carried on a plasmid.

Let me touch in more detail on the use of oxazolidinones in long term therapy. Over the course of ten days, Zyvox is quite safe, but when used for longer periods of time it can cause suppression of blood platelets and more importantly, can cause irreversible peripheral and optic neuropathy. Trius has largely completed a very encouraging nine month rodent toxicity of tedizolid at one, three and six times the human dosage. There was no signal of optic or peripheral neuropathy at six months for any dosage of tedizolid and based on emerging data this seems true at nine months as well. With linezolid, the first signals of peripheral and optic neuropathy emerged at one times the human dose and at three months. If this animal model data is verified in future human studies, it is a major positive for tedizolid. It is estimated that 40% of the usage of Zyvox is off-label for long tern treatment of disease such as bacteremia, osteomyelitis and prosthetic bones and joints. If tedizolid shows less or no propensity for optic or peripheral neuropathy, it could replace much of Zyvox usage in long tern therapy.

Upcoming Events

There are no truly binary events upcoming for Trius until the PDUFA data, which I anticipate to be in mid-2014. However I think that there will be a number of events that will continue to grow confidence of investors that tedizolid will be a commercial success:

· More detailed results of ESTABLISH-2 will be presented at the ECCMID conference in Berlin in late April.

· The complete integrated efficacy and safety data sets from ESTABLISH-1 and ESTABLISH-2 will be presented at ICAAC in September 2013.

· The tedizolid NDA should be filed in 2H, 2013. It has been give accelerated approval and I expect a US PDUFA date in mid-2014. The commercial launch could occur in 2H, 2014. The launch in Europe could occur in 1H, 2015.

· The next clinical trial will be in pneumonia and it is expected that the first patient will be dosed in 2H, 2013. The Company has reached agreement with the FDA and EMA on a single trial involving 726 patients that should be the basis for approval in ventilator associated pneumonia and hospital acquired pneumonia globally. A Phase 1 clinical study demonstrated that tedizolid accumulates up to 14 times greater than that reported for linezolid in lung cells. This increased concentration of what I believe is a more potent drug, suggests that the planned phase 3 trial tedizolid vs. linezolid is largely de-risked.

· Trius anticipates a partnering deal(s) for Europe and parts of the world not covered by the Bayer agreement in 2H, 2013.