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Summary

  • Achaogen Inc is a clinical-stage biopharmaceutical firm, focused on discovering, developing, and commercializing treatments for multi-drug resistant (MDR), gram-negative infections.
  • Achaogen Inc plans to raise $65 million in its upcoming IPO, offering 5.0 million shares at an expected price range of $12-$14 per share.
  • We are optimistic on this IPO, given the imminent need for new treatments for CREs, and the likelihood of FDA approval for lead product candidate, plazomicin.

Achaogen Inc (NASDAQ:AKAO), a clinical-stage biopharmaceutical firm, focused on discovering, developing, and commercializing treatments for multi-drug resistant (MDR), gram-negative infections, plans to raise $65 million in its upcoming IPO.

The South San Francisco, California-based firm will offer 5.0 million shares at an expected price range of $12-$14 per share. If the IPO can reach the midpoint of that range at $13 per share, AKAO will command a market value of $216 million.

AKAO filed on January 24, 2014.
Lead Underwriters: Credit Suisse Securities (USA) LLC, Cowen and Company LLC
Underwriters: William Blair and Co LLC, Needham and Co LLC

Summary

AKAO is a clinical-stage biopharmaceutical company, working on the development and commercialization of novel MDR, gram-negative infections. The firm's lead product candidate, plazomicin, is designed for the treatment of infections, caused by MDR Enterobacteriaceae, which include the bacteria that cause Klebsiella pneumonia and E. coli.

Strains of these bacteria resistant to the class of antibiotics known as carbapenems (among the last lines of defense against gram-negative bacteria),have become increasingly common; in hospital settings in the United States, carbapenem resistance rates in Klebsiella species grew from 1.6% to 10.4% between 2001 and 2011. Plazomicin will serve to fight against these carbapenem-resisitant Enterobacteriaceae((CRE)). AKAO has initiated a Phase 3 superiority trial of plazomicin, and the FDA has agreed to accept the design and analyses of the single pivotal Phase 3 trial as sufficient support for a New Drug Application under a Special Protocol Assessment procedure.

(click to enlarge)

(Source: http://achaogen.com/pipeline-overview/)

AKAO's development of plazomicin is funded in part through a contract with the Biomedical Advanced Research and Development Authority that could be worth up to $103.8 million; the firm plans to use the proceeds from this IPO and funds from BARDA to further its registration program for plazomicin.

AKAO is also in the process of developing treatments for other gram-negative bacteria and for infections caused by common Pseudomonas Aeruginosa bacteria.

Valuation

AKAO offers the following figures in its S-1 balance sheet for the year ending December 31, 2013:

Revenue: $18,512,000.00
Net Income: ($13,112,000.00)
Total Assets: $20,758,000.00
Total Liabilities: $13,056,000.00
Stockholders' Equity: ($124,576,000.00)

AKAO's current lack of profitability is unsurprising, given that it has yet to commercialize any of its product candidates. The firm is unlikely to turn a profit until and unless it can gain FDA approval for one or more of its product candidates.

Business

AKAO is not alone in its efforts to develop treatments for multi-drug resistant infections. If approved, plazomicin would have to compete with generically available aminoglycosides and polymixins, as well as Pfizer (NYSE:PFE)'s Tygacil. Firms including Forest Laboratories (NYSE:FRX), AstraZeneca (NYSE:AZN), Tetraphase Pharmaceuticals (NASDAQ:TTPH), and The Medicines Company (NASDAQ:MDCO) are also in the process of developing new treatments for MDR infections. Many of these firms have access to far greater technical and financial resources than AKAO.

Management

Dr. Kenneth J. Hillan, M.B., Ch.B. joined Achaogen has served as CEO since October 2011, a position which he accepted after a brief stint as Chief Medical Officer. Dr. Hillan previously worked for nearly two decades at Genentech, Inc, where he served in a number of key leadership positions in research and development, including Senior Vice President of Clinical Development, Inflammation, Vice President Immunology, Tissue Growth and Repair (ITGR); Vice President Development Sciences; and Vice President Research Operations and Pathology. He holds an M.B. Ch.B. (Bachelor of Medicine and Surgery) degree from the Faculty of Medicine at the University of Glasgow, U.K. Dr. Hillan is a Fellow of the Royal College of Surgeons (FRCS), and a Fellow of the Royal College of Pathologists (FRCPath).

Dr. Hillan received a total compensation of $1.45 million in 2012, which we consider excessive, given the firm's high losses.

Conclusion

We are optimistic on this IPO and rate it a buy in the $12 to $14 proposed range. We are hearing the deal is oversubscribed and the biotech IPOs have been flying off the shelf. This will come to an end but we will enjoy the gains while they last.

Given the imminent need for new treatments for CREs, plazomicin has the potential to be both a medical boon and a gold mine for AKAO, and The Special Protocol Assessment procedure makes it all the more likely that plazomicin will receive FDA approval quickly.

There does remain the inevitable risk that plazomicin will not perform well in its pivotal Phase 3 trial, but we believe that this is much better bet than most. If it does receive approval for plazomicin, AKAO is poised to take advantage through its current development of other treatments for gram-negative infections.

Source: Achaogen IPO Could Infect Investors With Earnings