These Pharma Companies Stand Between Us and the "Bacterial Apocalypse"

Antibiotic-resistant microorganisms are turning into a national medical nightmare, and the need for new, more effective medications to treat them has reached critical mass.

In response, the U.S. government and the pharma companies are joining forces to handle the crisis - and extraordinary opportunities are beckoning the savvy investor.

The Centers for Disease Control and Prevention (CDC) estimates that in the U.S. alone, antibiotic-resistant bacteria make 2 million people sick and 23,000 die each year.

Estimates of the annual cost to the economy range up to $35 billion in excess medical expenses and another $35 billion in lost productivity.

It's a problem that isn't going away. In fact, it's getting worse...

This Threatens Everything

Here's what the 2014 "Report to the President to Combat Antibiotic Resistance," by the President's Council of Advisors on Science and Technology, has to say: "Over the past decade... this brewing problem has become a crisis. The evolution of antibiotic resistance is now occurring at an alarming rate and is outpacing the development of new countermeasures capable of thwarting infections in humans. This situation threatens patient care, economic growth, public health, agriculture, economic security, and national security."

A number of these dangerous infections have become completely untreatable because the organisms that cause them have evolved into super-germs capable of withstanding the most potent weapons we can throw at them. This happens, as you probably know, when we overuse antibiotics. The drugs kill vulnerable bacteria, but a few that are naturally resistant survive, multiply, and thrive. The more we "medicine-bomb" them, the faster the process goes - and we end up where we are today.

When we reach a point where nothing in our standard arsenal of antibiotics works any longer, we won't be able to treat bacterial lung diseases, foodborne illnesses, dental abscesses, or even skin infections that would otherwise seem insignificant.

We won't be able to perform surgeries or administer chemotherapy. In fact, we may find ourselves in a situation like our forebears', with up to 30% of our children dying before their first birthday and nine expectant mothers out of every thousand not surviving childbirth.

Some of the illnesses that have already developed a level of antibiotic resistance include gonorrhea, anthrax, certain types of pneumonia, tuberculosis, salmonella, shigella, several deadly forms of meningitis, and of course, skin infections, including MRSA (methicillin-resistant Staphylococcus aureus), which has reached epidemic proportions.

Obviously, there is a crying medical need here, but until recently, almost no one was heeding it.

And the reason was money.

The Government Teams Up with Pharma Companies

We first became aware of the effect of antibiotic overuse in the 1970s, and you might think that big pharmaceutical companies would have jumped right in and seized the opportunity.

Not so...

Developing new drugs takes a lot of money and poses considerable risk: they cost billions in research dollars, four out of five won't get FDA approval because they're either not safe or don't work, and they bring in profits that are tiny compared to other types of drugs, such as cancer medications.

It seemed foolish to bother developing drugs that would eventually become useless as bacteria developed immunity to them, and that in the meantime might not bring enough ROI to make them worth all the time and money it would take to bring them to market.

As it had with orphan conditions, which usually struck too few patients to create a market attractive enough for drug manufacturers, the government recognized it could play a role in making new antibiotic development more attractive.

Primarily, it added a provision to the "Food and Drug Administration Safety and Innovation Act" (FDASIA), which it called the "Generating Antibiotics Incentives Now Act" (GAIN). GAIN promotes the development of antibacterial and antifungal drugs by granting a special designation, Qualified Infectious Disease Product (QIDP), to promising new medications.

So far, the FDA has granted 57 QDIP designations to new, experimental products. A QIDP designation grants a manufacturer the right to receive Priority Review and Fast Track status with the FDA, significantly shortening the time to drug approval and allowing special consulting during the process with experts from the agency. QIDPs also receive an additional five years of marketing exclusivity.

Where the Profits Are...

In 2014, three new drugs were developed under the plan to treat antibiotic-resistant skin infections, including MRSA:

  • Dalvance (dalbavancin) by Durata Therapeutics Inc., which has since been purchased by Actavis Plc. (NYSE: ACT)
  • Sivextro (tedizolid phosphate) by Cubist Pharmaceuticals Inc. (Nasdaq: CBST)
  • Orbactiv (oritavancin) by The Medicines Company (Nasdaq: MDCO).

Among these companies, Durata Therapeutics saw its price per share rise from $9.94 to $24.33 (it was purchased in November and no longer trades publically), and CBST from $58.50 to $100.94. The Medicines Company hasn't yet started to realize profits from its new drug, which was approved in August 2014, but with one of its focuses being infectious disease control, it is up nearly 200% over the past five years, and is destined to go much higher.

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Currently, there are 38 new antibiotics under development for the U.S. market, most by small adventurous biotechs with low market caps and often discounted share prices.

One that I find particularly intriguing is Achaogen Inc. (Nasdaq: AKAO), which is developing a drug called Plazomicin, currently in phase 3 development for the treatment of serious bacterial infections due to a germ called MDR CRE (multi-drug resistant Enterobacteriaceae) in hospitalized patients with bacteria in their blood (bacteremia) or hospital-borne (nosocomial) pneumonia. In 2013, the Centers for Disease Control and Prevention identified CRE as a "nightmare bacteria" and an immediate public health threat that requires "urgent and aggressive action."

Plazomicin, a natural product of bacteria that has been chemically modified so that germs can't become rapidly resistant to it, recently received QDIP designation from the FDA. Earlier studies suggest it has a strong potential to treat CRE and save lives. The global phase 3 trial is designed to show superiority over current drugs used to treat bacterial blood infections and pneumonia.

The pharma company probably won't be ready to apply for FDA approval until 2017, but in the meantime, assuming positive data, investors can expect to see PPS grow stronger as Wall Street keeps an eye on this $233 million company. Currently, PPS is running around a highly affordable $13, making this a great time to buy in.

Given the desperate need for a drug like this, AKAO is in an excellent position to deliver fantastic returns.

About the Author

Ernie Tremblay has more than 25 years of experience in following and analyzing the latest developments in health, medicine, and related technologies. He understands the FDA approval process, as well as the "hard science" behind new, experimental drugs and the market demand for them - and has a comprehensive grasp of the complex dynamics that determine whether a new drug will be a breakthrough winner, or just another casualty of the FDA approval process.

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