Achaogen AKAO New Antibiotic in Phase 3

Update: After a few years, Achaogen went bankrupt. Many worry about the lack of funding for the development of new antibiotics.  

Achaogen (AKAO) priced their IPO at $12 (bottom end) and added 1M to the size to make it a total of 6M offered. The company has a promising and much-needed new antibiotic dubbed Plazomicin that can be used to treat CRE, which is fatal nearly 1/2 the time and very hard to treat.

If all goes well, this drug will be commercialized in 2018. We'll get results in 2015 and 2016, with the NDA expected in 2017. Still, waiting is a long time, so this one is for patient investors.

In terms of market size, the most acute and immediate need amounts to $450M a year (30K cases x $15K per course of treatment.) Not huge, but not bad for one indication. It's important to note that a much larger number of less acute but high-risk cases would also probably receive treatment. This would at least double or triple that annual sales number.

The different mechanism of action is also important because resistant diseases are on the rise, and the ability of Plazomicin to penetrate the defenses of these bugs is critically important and likely to have broader applicability. They are competitive products under development at Cubist, Forest, Tetraphase, and The Medicines Company, but they offer much narrower coverage than Plazomicin.

From the CDC website:

Healthy people usually do not get CRE infections. In healthcare settings, CRE infections most commonly occur among patients who are receiving treatment for other conditions. Patients whose care requires devices like ventilators (breathing machines), urinary (bladder) catheters, or intravenous (vein) catheters, and patients who are taking long courses of certain antibiotics are most at risk for CRE infections.

Some CRE bacteria have become resistant to most available antibiotics. Infections with these germs are very difficult to treat, and can be deadly—one report cites they can contribute to death in up to 50% of patients who become infected.

Finally, Achaogen is well financed and has patient institutions in their corner who have expressed a desire to purchase additional shares in the IPO.

With an estimated 16M shares outstanding and the $12 share price, the market cap comes to just under $200M which is pretty low given the opportunity. However, this is a very long-term proposition, so it is best considered a long-term option within a broader portfolio.