Achaogen Initiates Strategic Review, Plans Significant Cut to Operating Expenses

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Shares of South San Francisco-based Achaogen, Inc. fell more than 12 percent in Monday trading after the company signaled that it began a review of strategic alternatives that could include a sale of the company.

In its announcement on Monday, Achaogen said part of that strategic review includes a restructuring of the company. The restructuring, the company said is expected to reduce operating expenses by 35 to 40 percent. Achaogen said it anticipates the restructuring to be completed by the end of 2018. The restructuring is designed to focus the company’s cash resources on the continued successful launch of Zemdri and advancing C-Scape, Achaogen said in its statement.

C-Scape is an oral beta-lactam/beta-lactamase inhibitor under development for MDR gram-negative infections. In January the company announced positive Top-line results for a Phase I trial of C-Scape.

The financial troubles at Achaogen followed a significant, but very brief high for the company -- regulatory approval for Zemdri (plazomicin). Zemdri is a treatment of complicated urinary tract infections that are caused by certain Enterobacteriaceae. Zemdri was approved for patients who have limited or no alternative treatment options. That approval from the U.S. Food and Drug Administration (FDA) was somewhat bittersweet for the company. It had also sought approval of Zemdri for bloodstream infections, but the FDA rejected that particular indication. An approval for that indication would have created an even wider market for Zemdri.

Only one month after the approval of Zemdri, the company sent signals that things were not well financially. In July Achaogen initiated a corporate restructuring that included the elimination of 80 positions, or about 28 percent of staff. Part of that July restructuring included the loss of some C-suite leaders. The company said Kenneth Hillan, president of R&D, Tobin Schilke, chief financial officer and Lee Swem, chief scientific officer, were all departing the company.

In the latest announcement concerning its financial woes, Achaogen did not specify how it intended to achieve those hefty reductions in operating expenses. No doubt another round of layoffs will be coming to the company. Achaogen is set to deliver its latest quarterly report on Nov. 8 and said it will provide additional details of its restructuring plans. Achaogen said it hired Evercore as an independent financial advisor to help guide it through the restructuring. The company noted that it was open to a potential sale or merger of the company or its assets.

Achaogen Chief Executive Officer Blake Wise said the company is committed to evaluating strategic alternatives that enhance value for company shareholders. At the same time, Wise noted that the company also plans to maintain its focus on the launch of Zemdri and the development of C-Scape as it manages operating expenses.

"We look forward to providing an update on Zemdri commercialization and launch at our upcoming third-quarter earnings call,” Wise said in a statement.

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