WBB Securities, LLC Steve Brozak, DMH [email protected] (908) 518-7610 Tetraphase Pharmaceuticals, Inc. (NasdaqGS: TTPH) Initiating Coverage Initiating Coverage with a Speculative Buy Rating February 22, 2018 and a 12-Month Price Target of $6.00 Tetraphase Prepares for Commercialization of a Needed Antibiotic Tetraphase Pharmaceuticals, Inc. (TTPH) is Current Price $2.20 a clinical stage pharmaceutical company, 12 Month Target Price $6.00 with eravacycline as its lead candidate. It is a novel tetracycline-derived antibiotic to 12-Month Trading Range $2.05-$9.93 treat resistant and multidrug-resistant Market Capitalization (Mil) $113.50 infections, including multidrug-resistant Shares Outstanding (Mil) 51.59 Gram-negative infections. Following Avg. Daily Volume 872,642 successful IGNITE1 and IGNITE4 Phase 3 L.T. Debt (Mil) 0.00 trials in complicated intra-abdominal infections (cIAI), a New Drug Application Dividend/Yield N/A (NDA) was filed with the FDA and a Book Value P/S $2.92 Marketing Authorisation Application (MAA) was submitted to the EMA for IV NASDAQ Composite 7,218.23 eravacycline. S&P 500 2,701.33 Historical Performance and Disclosures on Page 10 - 11 Two days ago, TTPH announced an exclusive Source: QUODD+ licensing agreement with Everest Medicines Limited, a C-bridge Capital-backed biopharmaceutical company based in China, to develop and commercialize eravacycline in mainland China, Taiwan, Hong Kong, Macau, South Korea, and Singapore (known as the Territories). Tetraphase will receive an initial upfront payment of $7.0 million and may receive clinical and regulatory milestones of up to $16.5 million as well as a maximum of $20.0 million via achieving annual sales milestones. Everest will be exclusively responsible for the development and commercialization of eravacycline in the Territories. TTPH will also be eligible to receive tiered royalties on net sales of eravacycline in the Territories. On February 13, 2018 top-line results from the Phase 3 (IGNITE3) clinical trial of IV eravacycline in complicated urinary tract infections (cUTI) were reported. In this trial, eravacycline did not achieve co-primary endpoints of responder rates (a combination of clinical cure and microbiological success) at the end-of-IV treatment visit and the test-of-cure visit, though it was well tolerated and maintained a safety profile consistent with prior studies. As TTPH management explained, many drugs are effective in one disease but not others. With positive results in cIAI and an excellent safety profile, the company has reported it is preparing for commercialization of eravacycline once approved. We believe that the critical demand for new antibiotics in the infectious disease armamentarium is an opportunity for the TTPH franchise. We are therefore initiating coverage of TTPH with a Speculative Buy Rating and a 12-month price target of $6.00. Valuation Rating Legend: Strong Buy – Should be aggressively purchased. Sell - Stock should be sold on market strength Buy - Should be purchased on market weakness. Sell Short - Should be aggressively sold. Hold - Fairly valued. Speculative Buy – For aggressive accounts only This company is entering a crucial year as it prepares for the likely approval of intravenous eravacycline in the United States and EU. As a determined franchise, TTPH has still been able to position itself with a clinical candidate to enter into the infectious disease market, an area of pharma in which we continuously advocate for greater acknowledgement and improved therapies. Additionally, TTPH has been recognized and supported by public and private entities, as apparent by their non-dilutive government contracts through NIAID, BARDA and CARB-X as well as the licensing agreement with Everest Medicines Ltd. Right now, the TTPH franchise is now trading below its cash value. This metric gives us confidence in highlighting the investment value thesis below. Using a sum-of-the-parts calculation we arrive at the $6.00 value by assigning a discounted value of $3.00 per share in cash and $3.00 per share to the eravacycline program in cIAI. Using a 51.59 million share count, we arrive at our 12-month valuation of $6.00 and initiate TTPH at a Speculative Buy recommendation. Eravacycline Eravacycline is being developed as a broad-spectrum IV and oral antibiotic for use as a first-line monotherapy for the treatment of Multiple Drug Resistant (MDR) infections. During in vitro studies it was shown to be effective against a wide range of Gram positive and Gram negative aerobic and anaerobic pathogens, including carbapenem-resistant microbes, strains of community-acquired methicillin-resistant Staphylococcus aureus (MRSA), vancomycin- resistant Enterococcus faecium and penicillin-resistant strains of Streptococcus pneumoniae. The FDA granted Fast Track designations for both the IV and oral formulations of eravacycline after being designated a Qualified Infectious Disease Product (QIDP), making eravacycline eligible for priority review and an additional five years of U.S. market exclusivity, upon approval. Eravacycline for cIAI TTPH’s lead program focuses on IV eravacycline for treating cIAI. An NDA was submitted to FDA in January 2018 based on data from two Phase 3 clinical trials, IGNITE1 and IGNITE4. Twice-daily IV eravacycline was well tolerated, achieved high clinical cure rates and demonstrated statistical non-inferiority to ertapenem and meropenem, respectively, in both trials. An eravacycline NDA is now being reviewed for acceptance by the FDA and eravacycline is under review by the EMA for European approval in the same indication, however the MAA is solely supported by the IGNITE1 trial. _______________________________________________________________________________________________ WBB Securities, LLC 2 Eravacycline for cUTI Eravacycline IV and oral formulations were evaluated for patients experiencing cUTI, in the IGNITE2 and IGNITE3 clinical trials. IGNITE3 top-line data was reported this February. In this trial, 1,205 patients were randomized 1:1 to receive IV eravacycline (1.5mg/kg every 24 hours) or ertapenem (1g every 24 hours) for a minimum of 5 days, and then were eligible for transition to an appropriate approved oral agent. The co-primary endpoints were responder rate (a combination of clinical cure and microbiological success) in the microbiological intent-to-treat (micro-ITT) population at the last visit of IV treatment and at the test-of-cure (TOC) visit (Day 5- 10 post therapy) using a 10% non-inferiority margin. Neither of the co-primary endpoints were achieved. Responder rates in the micro-ITT population at the end-of-IV (EOI) visit were 84.8% for eravacycline (n=363/428) and 94.8% ertapenem (n=382/403) (-10% CI: -14.1%, -6.0%). Responder rates at the TOC visit were 68.5% for eravacycline (n=293/428) and 74.9% for ertapenem (n=302/403), respectively (-6.5% CI: -12.6%, -0.3%). IGNITE2 was a 908-patient randomized study evaluating IV and oral eravacycline (1.5 mg/kg IV every 24 hours followed by 200 mg orally every 12 hours) versus levofloxacin (750 mg IV every 24 hours followed by 750 mg orally every 24 hours). Each patient received a minimum of three days of IV dosing and then, if clinically indicated, patients were eligible to transition to oral therapy for the remaining doses for a total treatment period of 7 days. The prime analysis evaluated the responder outcome (a combination of clinical cure rate and microbiological response) in the micro-ITT population at the visit 6-8 days after the completion of therapy using a 10% non-inferiority margin. For the EMA, the primary analysis evaluated the microbiological response in the microbiologically modified micro-MITT population and microbiologically evaluable (ME) populations at the post-treatment visit using a 10% non-inferiority margin. As reported initially in September 2015, eravacycline did not achieve the primary endpoint under either analysis. Additional Eravacycline Information Tetracycline was patented in 1953 and came into commercial use in 1978. If approved, eravacycline will be the first tetracycline derivative approved since 2005. Eravacycline is a fully synthetically-produced tetracycline. Traditional tetracyclines, made predominantly through a fermentation process, are similar to one another. The fermentation process allows molecular change on only a few parts of the drug molecule. The TTPH drug development process facilitates making more extensive changes to the basic tetracycline chemical structure than the traditional process. Infectious bacteria are becoming increasingly drug-resistant to existing tetracyclines and they are ineffective against Gram negative bacteria. The TTPH process makes creation of drugs that are effective against tetracycline-resistant and Gram-negative bacteria possible. TP-271 TP-271 is a clinical stage antibiotic for treating respiratory disease caused by bacterial biothreats and antibiotic-resistant public health pathogens. TP-271 is anticipated to protect _______________________________________________________________________________________________ WBB Securities, LLC 3 against tularemia, bubonic plague and anthrax disease, as well as community acquired bacterial pneumonia (CABP). The FDA has granted QIDP and Fast Track designations for TP-271 for the treatment of CABP. Ongoing preclinical development, manufacturing and Phase 1 clinical evaluations of safety and pharmacokinetics are funded by the NIH’s National Institute of Allergy and Infectious Disease. The Phase 1 randomized, placebo-controlled, double-blind,