Achaogen Plans to Restructure, Again

On Monday (November 5) Achaogen (NASDAQ:AKAO) announced it is reviewing strategic alternatives and corporate restructuring.

According to the press release, the company is seeking to sell or merge the company itself or its assets to “maximize shareholder value.” The company also noted a restructuring to preserve cash resources while continuing to launch its approved drug and working on its pipeline.

The restructuring is expected to reduce operating expenses by 35-40 percent — aside from one-time charges — and should be completed by the end of the year. The restructuring is meant to add value to a successful launch of ZEMDRI and advancing C-Scape.

“We are committed to evaluating strategic alternatives that enhance value for shareholders while maintaining our focus on the successful launch of ZEMDRI and the development of C-Scape,”, Black Wise, CEO of Achaogen, said in the press release.

The C-Scape program is the company’s next clinical candidate which is an oral antibacterial to address antimicrobial resistance. In September 2017, the company received a BARDA (Biomedical Advanced Research and Development Authority) funding contract of over US$12 million to support the drug’s development.

Achaogen is working with financial advisor Evercore in connection with this review of the company’s restructuring.

The press release also notes there is no assurance a transaction will result from this review, and any other transactions must receive approval from its board of directors.

This is the second restructuring announcement from the company since over the last several months. . The first was announced on July 26 and consisted of restructuring the executive management team, reducing spending on research and development (R&D), technical operating and general and administrative expenses.

Although the company received US Food and Drug Administration (FDA) approval for ZEMDRI in June 2018 and its launch was executed efficiently, Achaogen’s share price dropped. Following the approval, Achaogen’s stock price dropped over 23 percent.

The drug is a once-daily, IV administered antibiotic was approved for use in complicated urinary tract infections (cUTI). The company was seeking approval for an additional indication, bloodstream infection, but the FDA released a complete response letter stating there wasn’t adequate evidence for this approval.

The ZEMDRI launch and C-Scape development remain the top priorities for Achaogen’s product development with the restructuring.

The company specializes in antibacterial treatment for MDR gram-negative infections. Other preclinical programs such as its therapeutic antibody discovery platform remains deprioritized moving forward.

In addition to C-Scape BARDA funding, Achaogen also received the same funding for ZEMDRI. Other funding partners include the Bill & Melinda Gates foundation, CARB-X and CDMRP Department of Defense.

Investor takeaway

Since the announcement on Monday, Achaogen’s stock dropped 14.71 percent to US$3.16, as of 12 p.m. Wednesday (November 7).

On Tuesday (November 6), Mizuho Securities analyst Difei Yang reiterated his “Hold” position for the company. “We currently project a cash runway into mid-2019. In our valuation, we assume a $200 mil capital raise at $3.50/share in 1Q19,” Yang said in the report.

Investors interested in more information from Achaogen can look forward to the Q3 2018 financial results and conference call which will take place on Thursday (November 8). This is a turning point for the company as its the first look at ZEMDRI sales since its launch.

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Securities Disclosure: I, Gabrielle Lakusta, hold no direct investment interest in any company mentioned in this article.