Soon after its initial public offering in March of 2014, Achaogen stock reached a high of almost $19 per share on excitement over its antibiotic Plazomicin entering Phase 3 studies for the treatment of multidrug resistant gram negative bacteria. Referred to as "nightmare bacteria" by the head of the Centers for Disease Control, these "superbugs" are resistant to most drugs currently in the clinic. Infected patients carry an elevated risk of major complications and death, as there are few effective treatment options.
Plazomicin was seen by many as a potentially lifesaving drug of last resort. However, after missteps in the execution of the clinical trial, and the realization that delays in enrollment would require setting up a second Phase 3 trial, the price of the stock dropped significantly to the $5-$6 dollar range, representing a market cap of approximately $120M.
DEC believes that Achaogen is currently significantly undervalued. The probability of Plazomicin gaining approval has not changed, yet the current valuation is significantly below that of comparable companies. Although the timeline for approval is now roughly one year longer, it remains likely that Plazomicin will play a fundamental role in managing life threatening bacterial infections in hospitals around the world.
In an upcoming post, the investment thesis for AKAO will be presented in greater depth.
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