It should be motoring to profitability, but nine months after the U.S. launch of its new antibiotic, Zemdri (plazomicin), Achaogen Inc. has filed for chapter 11 bankruptcy and is now selling off its assets.

There can be no more potent illustration of the mismatch between antibiotics and market forces, nor of how despite numerous measures to incentivize antibiotic discovery and development, the system isn’t working.

Zemdri is a novel drug that is effective against complex urinary tract infections and carbapenem-resistant Enterobacteriaceae (CRE). As such, it is a much-needed new treatment, which should be on hand when existing antibiotics are defeated by superbugs.

Given that, Achaogen’s plight is “one of the most significant and worrying corporate failures of the decade” and “the latest symptom of an ailing antibiotics market,” said Jeremy Farrar, director of the U.K. research charity Wellcome Trust, commenting on the bankruptcy.

That Achaogen is now cast as poster child for everything that is wrong with the antibiotics market is all the more depressing, given the company previously was portrayed as a shining exemplar of how regulatory incentives and public and philanthropic funding had turned things around in the fight against superbugs.

The South San Francisco-based company was an early recipient of a Wellcome Trust seeding drug discovery grant, a program set up by the trust to advance early stage projects to the clinic.

The $8 million grant, awarded in January 2009, funded preclinical research leading up to the submission of the investigational new drug application for Zemdri (then ACHN-490). That led to positive phase I results and paved the way for Achaogen to close a $56 million series C round in April 2010, to finance phase II development.

Achaogen also won significant U.S. public grants, stacking up more than $150 million of nondilutive funding between its formation in 2006 and August 2010.

As Farrar noted, private investors backing Achaogen and its peers not unreasonably assumed companies that had received public and philanthropic funding for antibiotic development would find a ready market for their products.

That was the position of Alan Carr, analyst at Needham and Co. LLC, in a note last week saying his firm is dropping coverage of Achaogen.

The thesis when Achaogen raised $73.9 million in its IPO in March 2014, was that the toxicity of polymyxins used to treat CRE would lead to Zemdri sitting alongside Melinta Therapeutics Inc.’s Vabomere (meropenem and vaborbactam) in playing a meaningful role in the treatment of that challenging infection. “Instead, polymyxin use is stable while Vabomere and Zemdri are essentially not used at all,” Carr said.

(As an aside, in addition to Vabomere, New Haven, Conn.-based Melinta has three other marketed antibiotics: Baxdela (delafloxacin), Orbactiv (oritavancin) and Minocin. Despite that, it is not profitable, and says it has no prospect of being so in the near future).

For Carr, the outcome for Achaogen “raises questions around regulatory requirements for approval and labeling, reimbursement in the hospital setting, size of commercial effort needed to launch a new antibiotic and strategies for treatment guidelines updates.”

 ’Unacceptable’

Zemdri had sales of $800,000 in 2018. Apart from two products, all the antibiotics launched over the past 10 years in the U.S. have annual sales below $150 million, according to Carr. That barely covers the cost of keeping them on the market.

Investors lured into antibiotics by regulatory incentives and nondilutive grant funding have lost their appetites. “Investor sentiment toward nearly the entire space has deteriorated and cash is a concern for most companies,” Carr said.

Momentum is building in the U.S. for pull incentives to put in place alternative payment mechanisms after approval, but Carr said he does not see any signs they will be implemented in 2019.

In the U.K., the government has said it will investigate ways to de-link the price paid for antibiotics from the volume sold. Plans for a pilot are in the works, but there are concerns about a lack of additional funding and the slow timeline around that.

Jim O’Neill, author of the influential U.K. government review on tackling drug-resistant infections, said the response “seems a bit timid.” He’s also exasperated that his two other suggestions, of a $1 billion market entry award for companies launching a new antibiotic to instantly recoup their developments costs, and a “play or pay” scheme in which companies that do not invest in antimicrobial research would pay a levy to fund those that do, have not been taken up.

Three years after filing his report, O’Neill last month suggested the problems could be overcome by creating a government-owned entity that was not seeking private sector returns. There are plenty of undervalued assets which have received public funding but cannot attract private investment and those could form the basis of such an antibiotics’ utility, he said.

For Farrar, the tragedy of Zemdri is not that investors in Achaogen (of which Wellcome remains one) have lost their money, but that it sends out the message that “there is no viable route to commercial success for new antibiotics, however valuable they may be to society.”

It is “unacceptable” that despite agreement about what is wrong with the antibiotics market, policy makers have not addressed the problem, said Farrar. “Governments must send an immediate signal to companies and investors that the future is not as bleak as the present,” he said.