Thursday, February 16, 2017

An AIM holding: Achaogen (AKAO) by Jack O'Connor. “AKAO is up over 400% in the past year"

Achaogen, Inc. (AKAO, $17.33): “AKAO Stock Price Not Resistant to the Drug That Is Clinical Data; Stock Surges Over 180% Following Data Release.”
By: John O’Connor, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.
·         Achaogen, Inc. (NASDAQ: AKAO) is a clinical-stage biopharmaceutical company that engages in the research, development, and commercialization of antibacterial drugs that aim to treat multi-drug resistant (MDR) gram-resistant infections. Plazomicin is the firm’s leading product and is used to treat bacterial infections. This drug has proven in clinical trials to be effective in treating infections such as urinary tract infections, blood stream infections, and pneumonia. Achaogen was founded in 2002 and is headquartered in San Francisco, CA.

·         Achaogen announced on December, 12th 2016 positive results from its EPIC and CARE Phase III studies. The goal of the EPIC study was to test the effectiveness of plazomicin in patients with cUTIs; while the CARE study focused on using plazomicin to treat carbapenemase-resistant Enterobacteriaceae (CRE). Plazomicin met all of the FDA and EMA requirements in the EPIC study and showed a 71% reduction in mortality in the CARE Phase III study.

·         The results from these studies means that Achaogen will be able to initiate a New Drug Application (NDA) in the latter part of 2017.

·         By passing 3 of the 4 primary endpoints mandated by the FDA, plazomicin can now be deemed an effective treatment option for cUTIs. These positive results from the studies pleased investors and in turn resulted in a 183% appreciation in stock price from $5.25 on December 12th to $14.86 on December 14th

·         With earnings coming up soon for Achoagen, the stock is expected move again only slightly based on expected earnings of -$0.48. AKAO beat earnings in 3Q2016 after missing the previous three quarters.

Key Points

Given that AKAO relies so heavily on its plazomicin drug and its ability to treat cUTI and CRE among other infections, any movement in this stock price will be closely tied to clinical trial data. Therefore, it is no surprise that the stock surged when management came out with a press release detailing positive results of its two main studies. Barring any major changes in the firm’s cash balance (currently $61MM) or a severely disappointing 4Q2016 earnings call, the future looks bright for Achaogen.

CRE prevalence remains at all time high rates and studies have predicted the CRE population to double within the next 5 years. This bodes well for Achaogen and its plazomicin drug; which in the recent study has shown a 71% relative reduction in all-cause mortality compared to the current alternative drug named colistin. AKAO will try and have these results from the CARE study included in plazomicin’s recent FDA drug label.

The results from the EPIC and CARE Phase III trials also help mitigate some of the risk surrounding Achaogen’s dependency on the single plazomicin drug. While AKAO may only have 2 other drugs that are both in preclinical trials, the results from the recent studies prove that plazomicin is as close as it has ever been to FDA approval and subsequent commercialization. The expected commercial launch for plazomicin is now slated for 2018.

What has the stock done lately?
As mentioned earlier, following the release of the clinical data the stock price jumped by over 180% to a price of ~$15. Currently AKAO trades at $17.33 and has since slowed down in recent weeks. Following the data release on December 12th, Achaogen announced a public offering of 5.75 million shares of common stock. The proceeds from the sale are expected to be used to fund further drug development, regulatory filings, as well as the commercialization of plazomicin.

Source: Yahoo!Finance

Past Year Performance

With a 52 week range of $2.59 to $18.94 and a stock price that is up over 400% over the past year; the stock has performed exceptionally well. Despite missing on three of the previous four earnings, AKAO has performed well due to positive data releases.  

My Takeaway

Achaogen’s performance is almost entirely contingent upon the success or failure of its lead drug plazomicin. Therefore, it goes without saying that the recent developments in the Phase III trials of this drug acted as a major catalyst. Not only did this data provide evidence of the efficacy of plazomicin, but it passed the major endpoints deemed necessary by the FDA and is on the fast track to approval and commercialization. It is also worth mentioning that although it may lead to some dilution for stockholders, management took a proactive approach to funding the development of plazomicin by issuing more shares. It is for these reasons that I am bullish on Achaogen in the long-term and confident in their ability to get plazomicin to market as quickly and efficiently as possible. I am not overly concerned with the upcoming earnings announcements, since AKAO trades more heavily based on trial data and also a beat or miss has not significantly affected the stock in the past.

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