Achaogen files for Chapter 11 and motion to sell

June 2019 | DEALFRONT | BANKRUPTCY AND RESTRUCTURING

Financier Worldwide Magazine

June 2019 Issue

In a step which means the closure of one of the few remaining small antibiotics companies, biopharmaceutical company Achaogen, Inc. has filed a voluntary petition under Chapter 11 of the US Bankruptcy Code, as well as a motion seeking authorisation to pursue an auction and sale process under Section 363 of the code.

Both filings were made in the US Bankruptcy Court for the District of Delaware.

Achaogen – which develops and commercialises innovative antibacterial treatments for multi-drug resistant (MDR) gram negative infections – has also filed a series of motions with the court seeking to ensure the continuation of normal operations during this process. To this end, the company has the support of its secured lender, Silicon Valley Bank, which has made a $25m financing commitment to fund Achaogen’s operations through the auction and sale process.

Achaogen believes that this commitment provides it with sufficient liquidity to continue to meet its operational and financial obligations to patients, physicians, suppliers and employees.

The proposed bidding procedures, if approved by the court, would allow interested parties to submit binding offers to acquire substantially all of Achaogen’s assets, which would be purchased free and clear of the company’s indebtedness and liabilities. Interested parties could include both strategic and financial buyers, for whom substantial due diligence materials are available.

The sale process is expected to proceed according to the following timeline: (i) bids to be submitted by 29 May; (ii) a structured auction to commence no later than 3 June; and (iii) a sale to be concluded by 13 June. “The Achaogen board of directors and management team have thoroughly assessed the firm’s strategic options and financial situation and unanimously agree that this structured sale process represents the best possible solution,” said Blake Wise, chief executive of Achaogen.

Although Achaogen’s first commercial product Zemdri (Plazomicin) – a once-daily antibiotic designed to treat adults with complicated urinary tract infections, including pyelonephritis – received approval from the Food and Drug Administration (FDA) in June 2018, the company’s stock has trended strongly downwards since then. In July 2018, the company laid off approximately 80 employees – around 28 percent of its workforce – citing the need to focus on the launch of Zemdri.

“The closing of Achaogen underscores the need for immediate steps to ensure the innovation and availability of effective infection-fighting drugs,” said the Infectious Diseases Society of America (IDSA) in a statement. “Like other recently closed antibiotics companies, the company could not make a sufficient return on its investment because antibiotics are used infrequently and for short durations, while new antibiotics are held in reserve to protect their effectiveness. It also further decreases the likelihood that investors will risk supporting antibiotic research and development, in spite of the immediate and pressing need for these drugs.”

Achaogen’s legal counsel during the bankruptcy process is Hogan Lovells US LLP. The company’s financial advisers are MERU, LLC and Cassel Salpeter & Co. Cassel Salpeter has been retained, subject to approval of the court, to manage the sale and auction process.

Mr Wise concluded: “We continue to believe Zemdri has the potential to be a valuable component of a portfolio of anti-infective or hospital products and an important life-saving medicine for patients.”

Fraser Tennant