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Double Your Money on This Tiny Firm's Super Bug Drug

The worldwide antibiotics market ain't what it used to be.

Just this month, for instance, AstraZeneca PLC (NYSE ADR: AZN) – already facing difficulties about where to invest – said it was slashing its spending on antibiotics development.

"We have to make choices and we have to focus our investments where we think we can make a substantial difference," CEO Pascal Soriot told Reuters.

And AstraZeneca is hardly alone.

Back in 2011, Pfizer Inc. (NYSE: PFE) – once the industry leader – closed its Connecticut antibiotic research-and-development center, and shifted its anti-bacterial work to vaccines. Roche, Bristol-Myers Squibb Co. (NYSE: BMY) and Eli Lilly Inc. (NYSE: LLY) have also exited the antibiotic field.

This leaves a handful of bigger companies – GlaxoSmithKline PLC (NYSE ADR: GSK), Merck & Co. Inc. (NYSE: MRK) and the depleted AstraZeneca – as well as some smaller upstarts as the remaining participants.

Whether you agree or disagree, the catalysts for these cutbacks are easy to understand. Antibiotics face the same approval challenges and patent exclusivity restrictions as other drugs – but sell for hundreds of dollars per dose, instead of the tens of thousands that treatments for cancer and other maladies attract.

Unfortunately, this drop-off in antibiotic development comes just as we're seeing a big uptick in reports of drug-resistant "Super Bugs," says Radical Technology Profits Editor Michael Robinson.

"Bill, I'd be willing to bet that most of your readers know just what we're talking about – and probably have a family member, relative, friend or co-worker who's been afflicted by one of these hard-to-beat bugs," Michael told me late last week. "Make no mistake: This can be terrifying. I mean, you get an infection, and take antibiotics, which you fully expect to work. But they don't, the affliction gets worse, and it takes several courses of several different antibiotics to finally knock the bug out."

But as savvy investors well know, most problems also represent profit opportunities.

And that's just what Michael has found for us.

"What I've found is a micro-cap biotech that's developed promising technology in this area," he explained. "It's developed a drug that's faster-acting than already-existing rivals, but is just as effective. It has yet to be approved by the [Food and Drug Administration], but is in late-stage trials, meaning the testing is well along. It could actually file its new drug application (NDA) in the second half of this year."

Before we talk about the company, though, let's delve into the problem itself – and the science that aims to solve it.

Super Bugs are potentially deadly microbes that have mutated so many times over the years that they have become virtually immune to standard antibiotics. They can sometimes even withstand multiple courses of multiple medications – including the strongest that doctors have in their treatment arsenals. And they can invade hospitals and kill recovering patients whose weakened immune systems just can't fight off the drug-resistant bacteria.

One of the most common Super Bugs is known as "methicillin-resistant Staphylococcus aureus." You may also have heard it referred to as "MRSA" (pronounced "Mer-Suh"), or just as a "staph" infection.

In the United States alone, MRSA kills an estimated 20,000 people a year – and the same number in Europe.

That means that MRSA is deadlier than AIDS.

And MRSA isn't the only Super Bug threat.

The U.S. Centers for Disease Control is ringing the alarm bell because a nasty new bug has so far killed half the patients it's infected.

This Super Bug is known as carbapenem-resistant Enterobacteriaceae, or CRE for short. In the past decade, there's been a fourfold increase in CRE – and it has infected patients in 42 states.

In an interview earlier this month, the United Kingdom's top medical official said these drug-resistant Super Bugs are a "horror story" that has led to a new infectious-disease discovery almost every year for the past three decades.

Indeed, that official, British Chief Medical Officer Sally Davies, said these bugs are "a ticking time bomb – not only for the U.K., but also for the world."

Although there are still a couple of Big Pharma players with active antibiotic R&D programs, as we mentioned earlier, smaller ventures could deliver the biggest breakthroughs.

Michael says he's especially intrigued by a baby biotech called Trius Therapeutics Inc. (Nasdaq: TSRX).

Trius is working on a fast-acting drug known as tedizolid phosphate (TR-701) for the treatment of serious infections – including Super Bugs like MRSA.

Trius has already completed most of the clinical trials needed to seek approval for a new drug. The few results it has made public demonstrate a success rate roughly equal to rivaling therapies, with fewer negative effects – while requiring just 60% of the treatment time.

And just yesterday (Monday), the company announced positive top-line results from its ESTABLISH 2 Phase III clinical trial of the drug as a treatment for "acute bacterial skin and skin structure infections" (ABSSSI), which includes MRSA. As was true with its ESTABLISH 1 study, which tested the oral dosage form of tedizolid, Trius said the ESTABLISH 2 intravenous-to-oral transition study captured the endpoints for ABSSSI established by both the U.S. Food and Drug Administration and the European Medicines Agency.

And Trius had earlier said that – if it were able to report positive results for that study – it would likely file its new-drug application with the FDA in the last half of 2013.

With a market cap of just $270 million, and a share price of only $6.85, there's a hefty potential upside – should the Trius Super Bug drug gain U.S. and European approvals.

As we've mentioned many times, we never follow Wall Street's lead. But we love it when they take an idea of ours and run with it. Michael has already recommended this stock to readers of his free tech letter – the Era of Radical Change.

Yesterday, Zacks Investment Research – a pretty good outfit – reiterated its "Buy" rating on Trius shares, citing the positive test results and the fact that Trius has $80 million in cash on its balance sheet. Zacks also established a target price of $12 a share. That's the same as the Wall Street consensus, and would represent a 75% return from current levels.

And analyst target prices go as high as $14 – which is 104% above current levels … representing a potential double.

"When you have a company with a market cap under about 2.5 billion, it usually has a much smaller number of shares on the market. So, when the pros discover that firm, the buying pressure just becomes enormous," Michael told me. "The trick is to find the right stock and get ahead of the crowd. And then enjoy the big payouts."

[Editor's Note: Unless otherwise specified, we recommend that investors employ a 25% "trailing stop" on all holdings. But this is a high-risk/high-return-potential type of stock: As long as you acknowledge the risk, and observe position-sizing limits of 1% or so, you can go as high as 40% on this stock.]

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