What happened

After the FDA approved the use of the company's antibiotic, Zemdri, in complicated urinary tract infections (cUTI), but rejected its use in bloodstream infections, shares in Achaogen (NASDAQ:AKAO) are crashing 24.3% at noon EDT on Tuesday.

So what

There's an important need for new treatments that may help patients with infections that are resistant to existing drugs.

A man holds his head in his hands while sitting in front of a wall displaying a declining stock price chart.

IMAGE SOURCE: GETTY IMAGES.

UTIs are relatively common and easily treated; however, in some instances, treating UTIs is hindered by various factors, such as abnormal anatomy. Patients for whom ordinary antibacterial treatment isn't effective are considered to have cUTI.

Zemdri, which was formerly known by its generic drug name, plazomicin, is a new antibacterial that may work when other treatment options fail. An aminoglycoside that's dosed once daily, Zemdri can battle back against certain enterobacteriaceae that are associated with cUTI. In trials, Zemdri was proven to be non-inferior to meropenem, or Merrem, in fighting cUTI in adults, including in patients with kidney infection. Prior to losing its patent exclusivity, Merrem's sales were nearly $900 million per year.

Zemdri's cUTI trial results warranted a regulatory OK, but the FDA issued a Complete Response Letter for Zemdri's use in bloodstream infections (BSI), citing a lack of evidence of its safety and efficacy in BSI patients.

Now what

The FDA's decision isn't too surprising in that it mirrors the conclusion reached by the FDA's advisory committee earlier this year. In May, experts convened by the FDA to discuss Zemdri's merits voted in support of a cUTI approval, but against an approval in BSI.

During Achaogen's first-quarter earnings conference call in May, management said that the negative committee conclusion in BSI doesn't meaningfully affect its estimate of Zemdri's commercial opportunity. It plans to chat with the FDA soon to see if there are any additional steps it can take to secure an OK in BSI, but it believes doctors may still use Zemdri for BSI off-label.

Nevertheless, investors are punishing Achaogen's stock, ostensibly because they aren't convinced Zemdri will become anything more than a niche antibacterial that's used only in the toughest-to-treat patients. Still, that niche market could be significant given that 3 million patients with cUTI are treated in hospitals per year, including 70,000 with carbapenem-resistant enterobacteriaceae, which Zemdri targets.

Overall, investors will want to keep a close eye on how Zemdri's launch proceeds and if sales materialize in the coming quarters. If sales can reach nine figures annually, a very good argument could be made that Achaogen's $410 million market cap is too low. 

 

Todd Campbell has no position in any of the stocks mentioned. His clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.