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.
Summary
·
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.
