Part I

Forward-Looking Statements

This Annual Report on Form 10-K, including “Business” in Part I, Item I and “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7, contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Annual Report on Form 10-K are statements that could be deemed forward-looking statements reflecting the current beliefs and expectations of management with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “should,” “estimate,” or “continue,” and similar expressions or variations. The risks and uncertainties referred to above include, without limitation, risks related to our research and development efforts, need for future capital, timely completion of our clinical trials, uncertainty of clinical trial results or regulatory approvals or clearances, manufacturing of our product candidates at scales and costs appropriate for commercialization, enforcement of our patent and proprietary rights, potential competition and other risks that are described herein and that are otherwise described from time to time in our Securities and Exchange Commission (“SEC”) reports including, but not limited to, the factors described in Item 1A, “Risk Factors,” of this Annual Report. Given these risks and uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

Item 1. Business.

Overview

We are a clinical-stage biopharmaceutical company passionately committed to the discovery, development, and commercialization of novel antibacterials to treat multi-drug resistant (“MDR”) gram-negative infections. We are developing plazomicin, our lead product candidate, for the treatment of serious bacterial infections due to MDR Enterobacteriaceae, including carbapenem-resistant Enterobacteriaceae (“CRE”). 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."

Our development plan for plazomicin includes two Phase 3 clinical trials. The first study, a Phase 3 trial of plazomicin for the treatment of patients with complicated urinary tract infections (“cUTI”) and acute pyelonephritis (“AP”), entitled EPIC (Evaluating Plazomicin In cUTI), is expected to serve as a single pivotal study supporting a new drug application (“NDA”) for plazomicin in the United States. The Phase 3 EPIC trial is a randomized, double blind, active controlled study in patients with cUTI and AP and allows broad enrollment of patients with gram-negative infections. The U.S. Food and Drug Administration (“FDA”) has indicated that this non-inferiority trial comparing plazomicin to meropenem with a 15% non-inferiority margin and a corresponding sample size of approximately 530 patients, is acceptable to serve as a registration trial supportive of the NDA. The first patient was enrolled into the Phase 3 EPIC trial in January of 2016. We expect top-line results for our Phase 3 EPIC trial and to submit an NDA for plazomicin in the second half of 2017, with a planned commercial launch of plazomicin in the U.S. in the second half of 2018, if our NDA is approved.

The Phase 3 EPIC trial is designed to enroll a broad range of patients with cUTI or AP, including patients with infections due to MDR gram-negative pathogens. If successful, this study will provide clinical evidence of non-inferiority to meropenem, a carbapenem antibiotic considered to be a last line of defense in patients with serious infections due to Enterobacteriaceae, including fluoroquinolone resistant and extended spectrum beta-lactamase (“ESBL”) producing isolates. We believe that favorable efficacy data from this trial will provide the basis for FDA approval and will permit plazomicin to be used as a treatment for MDR gram-negative pathogens, including CRE and ESBL-producing pathogens. This study will also provide important safety data regarding plazomicin in patients with various co-morbidities, including those with varying degrees of renal function.

The second ongoing study, our Phase 3 CARE (Combating Antibiotic Resistant Enterobacteriaceae) trial, is a resistant pathogen-specific trial designed to evaluate the efficacy and safety of plazomicin in patients with infections due to CRE. We believe our Phase 3 CARE trial will provide important data about plazomicin’s potential in treating patients with CRE infections, where there are limited treatment options currently available. The Phase 3 CARE trial is funded in part with a contract from the Biomedical Advanced Research and Development Authority (“BARDA”), an agency of the U.S. Department of Health and Human Services.

We have worked closely with the FDA to amend the protocol for the Phase 3 CARE trial with the goal of enhancing patient enrollment. In the second quarter of 2015, we began implementing the first protocol amendment (“Amendment No. 1”) that expanded inclusion/exclusion criteria and modified the primary endpoint to include disease-related complications as well as

mortality. In the third quarter of 2015, we began implementing a second protocol amendment (“Amendment No. 2”) that added a single-arm plazomicin cohort (“Cohort 2”) that allows enrollment of patients with CRE infections who are not eligible for the randomized study arms (“Cohort 1”). Expanded eligibility in Cohort 2 includes patients with cUTI/AP caused by CRE, a patient population with significant unmet medical need, as well as patients with infections resistant to colistin, patients with polymicrobial infections, and patients with lower Acute Physiology and Chronic Health Evaluation II (“APACHE II”) scores. We expect Cohort 2 to increase enrollment in Cohort 1 of the Phase 3 CARE trial and to generate important clinical data for plazomicin treatment in a broader range of patients with CRE infections, including cUTI. We plan to analyze and submit early data from the Cohort 2 plazomicin treatment arm to a medical meeting for presentation in 2016. The Special Protocol Assessment (“SPA”) agreed to with the FDA for the Phase 3 CARE trial is no longer effective and we do not intend to request a new SPA.

Despite enrollment improvements following the implementation of Amendment Nos. 1 and 2, we have now concluded that it is not feasible to enroll 360 patients in Cohort 1 of the Phase 3 CARE study. We plan to stop enrollment in the Phase 3 CARE study in 2017 when we expect to complete enrollment in the EPIC study. We expect top-line data from the Phase 3 CARE trial in the second half of 2017, at approximately the same time as when we expect to report top-line data from the Phase 3 EPIC trial, and we expect to enroll up to 100 patients in the CARE study. We plan to submit the Phase 3 CARE study results as supportive data with the plazomicin NDA based on our Phase 3 EPIC trial and to submit the results to a peer-reviewed journal and for presentation at a medical meeting in 2017. We have reviewed and discussed this scenario with Infectious Disease opinion leaders and clinicians, who have indicated their support for this approach and timeline. Based on physician market research, we believe the Phase 3 CARE study will provide important and meaningful data regarding the efficacy, safety, microbiology, and dosing, as well as important health economic data, to better inform their use of plazomicin in the treatment of patients with CRE infections.

In 2012, the FDA granted fast-track designation for the development and regulatory review of plazomicin to treat serious and life-threatening CRE infections. In 2014, plazomicin received Qualified Infectious Disease Product (“QIDP”) designation from the FDA. The QIDP designation was created by the Generating Antibiotic Incentives Now Act (the “GAIN Act”), which was part of the FDA Safety and Innovation Act (“FDASIA”) and provides certain incentives for the development of new antibiotics, including priority review and an additional five years of market exclusivity. Our plazomicin program is funded in part with a contract from BARDA for up to $103.8 million. We have global commercialization rights to plazomicin, which has patent protection in the United States extending through 2031. Plazomicin is the first clinical candidate from our gram-negative antibiotic discovery engine, and we have other programs in early and late preclinical stages focused on other MDR gram-negative infections.

According to government agencies and physician groups, including the Centers for Disease Control and Prevention (“CDC”) and the Infectious Disease Society of America, one of the greatest needs for new antibiotics is to treat CRE and other drug-resistant gram-negative pathogens. CRE leads to mortality rates of up to 50% in patients with bloodstream infections. We estimate that there were approximately 150,000 cases of CRE infections in the United States and five major markets in the European Union (“EU”) in 2015, which we refer to as the EU 5. Based on the significant increase in resistance rates in recent years, we anticipate CRE will continue to be a major health problem. For example, CDC surveillance data indicates that the rate of carbapenem resistance in Klebsiella species, a member of Enterobacteriaceae, increased from 1.6% to 10.4% in the hospital setting in the United States between 2001 and 2011. In Italy, K. pneumoniae carbapenem resistance rates more than doubled from 16% in 2010 to 36% in 2014. Governments, in collaboration with the private sector, have begun to respond by progressing regulatory reform and economic incentives to spur development of new antibiotics. The Company joined over 80 pharmaceutical, biotechnology, and diagnostics companies in drafting and signing a joint Declaration on Combating Antimicrobial Resistance that launched at the World Economic Forum in Davos, Switzerland, in January 2016, and sets out how governments and the industry need to work together to support sustained investment in the new products needed to beat the challenges of rising drug resistance.

Plazomicin is a novel intravenous aminoglycoside antibiotic. Aminoglycosides have been used successfully for the treatment of serious infections for more than 50 years. However, the widespread clinical resistance to currently marketed aminoglycosides has increasingly limited their utility. We developed plazomicin by chemically modifying sisomicin, a naturally occurring aminoglycoside, in order to overcome common aminoglycoside resistance mechanisms. In MDR Enterobacteriaceae, including CRE, plazomicin remains active where most other antibiotics, including the commercially available aminoglycosides, have limited potency due to resistance.

We consider the following to be key attributes that support the clinical utility and commercial value of plazomicin:

 

CRE are one of many types of MDR gram-negative pathogens threatening patients. Bacteria such as Pseudomonas aeruginosa, Acinetobacter baumannii, and extended-spectrum beta-lactamase producing Enterobacteriaceae, each pose "serious" resistance threats, according to the CDC, and also drive a great need for new, safe, and effective antibiotics. We have assembled the expertise and capabilities required, including chemistry and microbiology, to develop new agents for the treatment of gram-negative infections. Plazomicin was the first clinical candidate from our gram-negative antibiotic discovery engine. In addition, our research and development pipeline includes two programs that specifically target Pseudomonas aeruginosa or Acinetobacter baumannii infections: 1) a program to discover and develop small molecule inhibitors of LpxC, which is an enzyme essential for the synthesis of the outer membrane of gram-negative bacteria, and 2) a therapeutic antibody program.

Strategy

Our strategy is to discover, develop, and commercialize new antibacterials for the treatment of gram-negative bacterial infections. Key elements of our strategy are as follows:

LpxC program. We have a contract for up to $103.8 million with BARDA for the development of plazomicin as a countermeasure for diseases caused by antibiotic-resistant pathogens and biothreats, such as pneumonic plague and tularemia. We also have a contract for up to $5.0 million with the National Institute of Allergy and Infectious Diseases (“NIAID”) to support the discovery and development of LpxC inhibitors for the treatment of bacterial infections. In the past, we have also received funding support from agencies such as the U.S. Department of Defense (“DOD”) and The Wellcome Trust, a global charitable foundation. We also partner and collaborate with leading academics, scientists, and clinicians to enhance our internal discovery and development expertise, and to jointly sponsor funding proposals.

Antibacterials Background

Antibacterials, which we refer to interchangeably as antibiotics, are drugs used to treat infections that are caused by bacteria. The introduction of antibiotics is recognized as one of the most transformative events in medicine. Prior to the introduction of the first antibiotics in the 1930s and 1940s, bacterial infections were often fatal, and invasive surgery was accompanied by a high risk of infectious complications. Today, antibacterials are used routinely to treat and prevent infection. According to IMS Health, antibiotics accounted for $38.8 billion in sales globally in 2012, with healthcare providers prescribing 268 million courses of antibacterials in the United States alone.

There are two main varieties of bacteria, based on a common laboratory staining test known as the "Gram stain." Gram-positive bacteria are surrounded by a single lipid membrane and a thick cell wall. Common gram-positive pathogens include Staphylococcus aureus (including methicillin-resistant strains), Streptococcus species, and Clostridium difficile . In contrast, gram-negative bacteria are encircled by two lipid membranes, an inner membrane and an outer membrane, with a thinner cell wall in between. Gram-negative bacteria include P. aeruginosa , A. baumannii , and the Enterobacteriaceae, a family of related organisms that includes E. coli , K. pneumoniae , Enterobacter, Salmonella, and Shigella species. Drugs that act in the cytoplasm of gram-negative bacteria must cross both the inner and outer membranes, as distinct from drugs that just act on gram-positive bacteria, which only have to cross one membrane. Each membrane in gram-negative bacteria excludes different types of chemical entities, requiring gram-negative active antibiotics to be specifically designed to permeate both membranes. A 2007 study found that in hospital ICUs worldwide, approximately 54% of bacterial infections were caused by gram-negative organisms and 41% by gram-positive organisms, with the remainder caused by other types of bacteria.

Antibiotics are evaluated according to several criteria:

should be use cautiously and under supervision of an infectious disease specialist. The MIC values defining susceptibility are established by FDA on approval of new antibiotics and medical standards organizations including the Clinical Laboratory and Standards Institute ("CLSI"), and the European Committee on Antimicrobial Susceptibility Testing ("EUCAST").

New Antibiotics Are Needed for Resistant Gram-negative Infections

According to the CDC, at least two million people each year in the United States acquire serious infections with bacteria that are resistant to one or more of the antibiotics designed to treat those infections, and each year, over 20,000 patients in the United States die from these infections. In the EU, the annual burden posed by resistant healthcare associated bacterial infections is approximately 2.5 million hospital days and 25,000 deaths. Similar problems exist throughout the world, and the World Health Organization has declared antibiotic resistance a threat to global health security. The development and spread of resistance is driven by the use of antibiotics. Once they arise, resistant bacteria can be transferred between patients and antibiotic resistance mechanisms can be transferred between bacterial species, thus increasing the problem.

Antibiotic-resistant infections not only cause significant morbidity and mortality, but also place a substantial cost burden on the healthcare system. In most cases, antibiotic-resistant infections require prolonged and/or costlier treatments, extend hospital stays, and necessitate additional doctor visits and healthcare expenditures compared with infections that are easily treatable with antibiotics. The CDC estimates that the excess annual cost resulting from these infections in the United States is as high as $20 billion. According to an estimate from a 2012 study of over 5,500 U.S. patients, the average incremental per-patient hospital cost for antibiotic-resistant healthcare-associated infections, as compared to antibiotic-susceptible infections, was over $15,000.

According to government agencies and physician groups such as the CDC and the Infectious Disease Society of America, one of the greatest needs is for new antibiotics to treat infections caused by drug-resistant gram-negative pathogens, including CRE, P. aeruginosa , and A. baumannii . These pathogens are associated with significant mortality, as growing antibiotic resistance has left limited effective treatment options. There have been few approvals for new gram-negative antibiotics in recent decades, and there are to our knowledge only a handful of other antibiotics currently in Phase 3 development for infections due to gram-negative pathogens.

Governments, in collaboration with the private sector, have begun to respond to this significant and growing unmet medical need by creating governmental and non-governmental entities tasked with addressing the problem and progressing legislation for reimbursement and regulatory reform, and economic incentives. In the United States, the federal government has developed a National Action Plan for Combating Antibiotic Resistant Bacteria, which outlines Federal activities over the five-year period from 2015 to 2020 designed (i) to enhance domestic and international capacity to prevent and contain outbreaks of antibiotic-resistant infections; (ii) to maintain the efficacy of current and new antibiotics; and (iii) to develop and deploy next-generation diagnostics, antibiotics, vaccines, and other therapeutics. The National Action Plan proposes to accelerate research and development for new antibiotics through a multifaceted approach that includes the creation of an Antibiotic Resistance Biopharmaceutical Incubator ("ARBI") and intensified support for antibiotic product development from the National Institutes of Health (“NIH”), BARDA, and the DOD’s Defense Threat Reduction Agency (“DTRA”). Accordingly, the 2016 U.S. federal budget included increases of $96 million and $100 million for BARDA and NIAID, respectively, to fund research and development for antimicrobial resistance. The federal government has also established the Presidential Advisory Council on Combating Antibiotic Resistant Bacteria, a federal advisory committee comprising fifteen experts and five organizations, which is designed to provide advice, information, and recommendations to the Secretary of Health and Human Services on programs and policies related to combating antibiotic-resistant bacteria.

In 2014, the United Kingdom established the Review on Antimicrobial Resistance, led by Lord Jim O’Neill, to produce an analysis of the global impact of antimicrobial resistance (“AMR”), and to propose concrete actions to address AMR globally. As of February 11, 2016, this group had published seven reports quantifying the significant impact of antimicrobial resistance, and proposing solutions to address the growing problem. These include a proposed “Global Innovation Fund for Antimicrobial Resistance”; a $2 billion fund to be funded by the pharmaceutical industry to fill existing gaps in antimicrobial research and development.

On the legislative front, in July 2012, the Food and Drug Administration Safety and Innovation Act was passed, which included the Generating Antibiotics Incentives Now Act (the “GAIN Act”). The GAIN Act provides incentives for the development of new, qualified infectious disease products, including potential for priority review and the potential for adding five years to the

otherwise applicable regulatory exclusivity period. In July 2015, the 21st Century Cures Act passed the U.S. House of Representatives. This is a significant piece of legislation which aims to expedite the development and regulatory approval of breakthroughs in biomedical research. Key sections of this legislation support the development and reimbursement of new antibacterials targeting drug-resistant bacterial infections, including the Developing an Innovative Strategy for Antimicrobial Resistant Microorganisms Act (the "DISARM Act"), and the Antibiotic Development to Advance Patient Treatment Act (the "ADAPT Act"). If approved and enacted, the DISARM Act would reform reimbursement of qualifying antimicrobial products in the hospital setting to allow value-based pricing, thus providing a powerful incentive for manufacturers to develop new antibiotics. The ADAPT Act aims to establish a pathway for the prompt approval of antibacterial and antifungal drugs that are intended to treat serious or potentially fatal infections. A companion bill to the ADAPT Act, called the Promise for Antibiotics and Therapeutics for Health Act (the "PATH Act"), was introduced in the U.S. Senate in January 2015. Finally, the Reinvigorating Antibiotic and Diagnostic Innovation Act (the “READI Act”), introduced in September 2015, would amend the U.S. Internal Revenue Code to allow tax credits for 50% of the clinical testing expenses for infectious disease products that are intended to treat a serious or life-threatening infection.

Our Antibiotic Discovery and Development Engine

The challenge of discovering and developing new antibacterials for the treatment of gram-negative infections is that such treatments need to overcome resistance mechanisms to existing antibiotics and to permeate the inner and outer membranes of the bacteria. Since we began operations in 2004, we have focused on the discovery and development of antibiotics to treat gram-negative infections and have developed proprietary know-how about the relationship between chemical structure and gram-negative potency through our work on multiple antibiotic classes.

Our progress in discovering and developing gram-negative product candidates has been achieved through:

clearance, which could enable single-dose treatment options in infected individuals and could allow prophylactic treatment options in high risk individuals. These favorable antibody properties could also support a faster clinical development path, which is important for a swift response during infectious disease outbreaks. For these reasons, we are building an infrastructure and capabilities designed to rapidly discover and develop human antibodies for the treatment of infectious diseases.

Research and Development Pipeline

The following table summarizes the status of plazomicin and our other research programs:

Plazomicin

Overview

Our lead product candidate is plazomicin, a novel aminoglycoside designed by our scientists to overcome most clinically relevant aminoglycoside resistance mechanisms. Aminoglycosides have been used successfully for the treatment of serious bacterial infections for more than 50 years. As a class, aminoglycosides have several important characteristics including rapid bactericidal activity, well-characterized PK, a lack of metabolism in humans, and excellent solubility and stability. However, the spread of resistance to currently marketed aminoglycosides has decreased their clinical utility. We developed plazomicin by chemically modifying an existing aminoglycoside, sisomicin, a natural product isolated from bacteria, to shield the regions of the molecule that are targeted by the enzymes responsible for aminoglycoside resistance. As a result of these modifications, plazomicin remains active against MDR organisms where most other major drug classes, including commercially available aminoglycosides such as gentamicin and amikacin, have limited activity. Based on this profile, we are developing plazomicin as an intravenous ("IV") therapy for the treatment of serious bacterial infections due to MDR Enterobacteriaceae, including ESBL-producing Enterobacteriaceae and CRE, which the CDC considers to be among the most serious and urgent resistance threats to public health.  

We consider the following to be key attributes that support the clinical utility and commercial value of plazomicin:

plazomicin in patients with cUTIs, as well as required Phase 1 PK and safety clinical trials. In patients with cUTIs, plazomicin demonstrated efficacy that was similar to levofloxacin in microbiological eradication of the causative pathogen of the infection, which were primarily Enterobacteriaceae (but mostly non-MDR Enterobacteriaceae), and in clinical outcome, specifically, resolution of baseline signs and symptoms.

 

Based on these attributes, we believe that plazomicin has the potential to become the new standard of care for the treatment of serious bacterial infections due to MDR Enterobacteriaceae, including CRE.

Carbapenem-Resistant Enterobacteriaceae Pose an Urgent Threat to Patients

The need for new antibiotics to treat CRE is particularly acute, as CRE are one of the top global threats in infectious disease. In 2013, the CDC labeled CRE as "nightmare bacteria" and indicated that CRE pose a public health threat requiring "urgent and aggressive action." These bacteria are commonly MDR, exhibiting resistance not only to carbapenems, but also to nearly all antibiotics commonly used to treat gram-negative infections, including cephalosporins, beta-lactam/beta-lactamase inhibitor combinations, fluoroquinolones, and currently-marketed aminoglycosides. Resistance to carbapenems has been highlighted because these drugs are one of the last lines of defense against resistant gram-negative infections. Most CRE express enzymes called carbapenemases which break down the carbapenem antibiotic molecule before it can kill the bacteria. Due to the lack of effective therapies, CRE infections are associated with significant mortality, with up to 50% mortality observed in patients with bloodstream infections and greater than 70% in patients with cancer or receiving a liver transplant.

With limited treatment options available for CRE infections, physicians have resorted to previously abandoned drugs such as colistin or more recently approved drugs such as tigecycline. However, there is evidence that these antibiotics are failing patients. For example, in bloodstream infections due to carbapenemase-producing K. pneumoniae , all-cause mortality for treatment with colistin, tigecycline, or combinations of antibiotics that do not include a carbapenem active in vitro against the infecting isolate were reported to be 46%, 47%, and 37%, respectively. Recently, resistance to even these last-resort treatments has begun to be reported, further increasing the urgency for new therapeutic options.

The CRE problem is global and the incidence has increased significantly over the last decade. For example, CDC surveillance data indicates that the rate of carbapenem resistance among Klebsiella species increased from 1.6% to 10.4% in the United States between 2001 and 2011. In Italy, 33% of K. pneumoniae strains were carbapenem-resistant in 2014, a sharp increase from 2010 when the rate was 16%. The problem is even more pronounced in Greece, with more than 63% of K. pneumoniae strains exhibiting resistance in 2014. In Latin America, 17-18% of Klebsiella species were resistant to carbapenems in Brazil and 11-12% in Argentina, according to surveillance data gathered in 2011.

We estimate that there were approximately 150,000 cases of CRE infections in the United States and the EU 5 in 2015. We believe that CRE incidence will continue to increase in the future. A key driver of resistance growth, the use of carbapenems, is increasing. Once restricted in use to limit the emergence of resistance, hospitals are changing their policies due to the pressing need for carbapenems to treat the growing number of MDR infections. In a recent survey, two-thirds of U.S. hospital pharmacy directors reported that carbapenems are now unrestricted on their hospital formularies, likely a reflection of the increasing incidence of difficult-to-treat gram-negative infections. Additionally, the spread of CRE among patients, between healthcare facilities, and across geographic regions is exacerbated by the ability of Enterobacteriaceae to readily transfer their resistance genes from one bacterium to another. Especially concerning is the potential of CRE to spread in the outpatient setting, which could lead to an epidemic of community-based CRE infections. Among outpatients in the United States, almost two percent of K. pneumoniae isolates were resistant to carbapenems in 2010, up from a negligible rate in 2005 and a recent study in 2012-2013 concluded that approximately 20% of CRE infections in hospitalized patients were community acquired. Finally, CRE are very difficult to eradicate once they establish a foothold in the healthcare setting.

Extended-spectrum beta-lactamase (ESBL)-producing Enterobacteriaceae Pose a Serious Threat to Patients

The need for new antibiotics to treat ESBL-producing Enterobacteriaceae is high, as these bacteria have become widespread globally in both healthcare-associated and community-onset infections and the use of carbapenems to treat infections caused by these organisms is felt to be contributing to the rise in CRE. In 2013, the CDC indicated that ESBL-producing Enterobacteriaceae pose a serious concern to public health threat requiring "prompt and sustained action." Similar to CRE, these bacteria are commonly MDR, exhibiting resistance not only to extended spectrum cephalosporins but also to fluoroquinolones, and currently-marketed aminoglycosides. In many cases the remaining treatment option is a carbapenem and use of carbapenems to treat these infections is thought to be contributing to increased carbapenem resistance. According to the CDC publication "Antibiotic Resistance Threats in the United States, 2013", it is estimated that nearly 26,000 healthcare-associated Enterobacteriaceae infections annually, or 19%, are caused by ESBL-producing Enterobacteriaceae in the United States alone. Infections caused by these organisms are associated with significant mortality; patients with bloodstream infections caused by ESBL-producing Enterobacteriaceae are approximately 57% more likely to die than those with bloodstream infections caused by a non ESBL-producing strain.

Commercial Strategy for Plazomicin in CRE

Our overall goal is to establish plazomicin as the standard of care for the treatment of serious bacterial infections due to MDR Enterobacteriaceae, including CRE. Our strategy is intended to support plazomicin’s differentiated profile from both approved and development-stage antibacterials. Our clinical development program is focused on the treatment of serious bacterial infections due to Enterobacteriaceae in patients with limited or no alternative treatment options, including patients with cUTI or

AP. Based on feedback from the FDA, we expect the Phase 3 EPIC trial in cUTI and AP to serve as a single pivotal study supporting an NDA for plazomicin in the United States, which we expect to submit in the second half of 2017 and, if approved, would enable plazomicin to be used as a treatment for MDR gram-negative pathogens, including CRE and ESBL-producing pathogens. We believe the Phase 3 CARE trial will provide important data about plazomicin’s potential in treating patients with CRE infections, where there are limited treatment options currently available. Our goal is to complete enrollment in the Phase 3 CARE study in 2017 when we expect to complete enrollment in the Phase 3 EPIC study. We expect top-line data from our Phase 3 CARE trial in the second half of 2017, at approximately the same time as when we expect to report the top-line data from EPIC. We have reviewed and discussed this scenario with Infectious Disease opinion leaders and clinicians and have gained support for this approach and timeline. Based on physician market research, we believe the Phase 3 CARE study will provide important and meaningful data regarding the efficacy, safety, microbiology, and dosing, as well as important health economic data, to better inform their use of plazomicin in the treatment of patients with CRE infections.

We believe that the commercial opportunity for plazomicin will be significant if our Phase 3 EPIC trial provides evidence of plazomicin efficacy and safety in cUTI and plazomicin is ultimately approved. Given the lack of effective therapeutic options against MDR gram-negative pathogens, including CRE and ESBL-producing pathogens, we anticipate that the effectiveness of plazomicin in our Phase 3 program, along with data describing plazomicin’s microbiological activity, will create significant physician demand for plazomicin based on our primary market research. A demonstrated benefit in a patient population with a high risk of death, and a potential to circumvent spread of CRE in the hospital setting, will be key product differentiators that drive adoption.

We intend to achieve our pricing and reimbursement objectives through demonstration of a benefit against MDR gram-negative pathogens, including CRE and ESBL-producing pathogens, as well as through demonstration of significant pharmacoeconomic cost savings to the healthcare system with the use of plazomicin. At a 2013 forum sponsored by The Pew Charitable Trusts, a nonprofit organization, which brought together payors, the FDA, and industry representatives, panelists supported an approximate price point of $15,000 per treatment course for new antibacterial agents for resistant infections as long as clinical and economic benefits were clearly demonstrated. We are collecting data in our Phase 3 CARE trial that is designed to enable us to compare medical resource utilization between patients treated with plazomicin and those treated with comparator therapy. For example, we plan to determine whether plazomicin-based therapy results in fewer days on mechanical ventilation, less time in the ICU, and shorter total hospital stays. As a reference for the potential cost-savings that could accumulate, according to a Critical Care Medicine publication from June 2005, a study using 2002 cost data estimated that the total cost of a single day in the ICU without mechanical ventilation was over $3,000, and that the incremental cost of a day of mechanical ventilation in the ICU was over $1,500. Accordingly, we believe an effective treatment for CRE infections has the potential to yield substantial cost-savings relative to existing therapy based on these key cost drivers.

We expect physicians will use plazomicin for definitive treatment of patients with MDR gram-negative pathogens, including CRE and ESBL-producing pathogens, as well as for empiric treatment, or treatment prior to definitive confirmation of the pathogen, of patients who are at risk of CRE. Definitive treatment for CRE begins when the infecting pathogen has been confirmed as CRE. Assuming success of our Phase 3 trials as currently designed, definitive treatment with plazomicin is expected to last between 5 to 7 days for cUTI patients. Data from our Phase 3 CARE study may also provide data showing treatment with plazomicin is expected to last between 7 to 14 days for bloodstream infection and pneumonia patients. We estimate that there were approximately 150,000 cases of confirmed CRE infections in the United States and the EU 5 in 2015. Given the importance of providing effective CRE therapy as soon as possible in order to reduce the risk of death, we believe physicians will use plazomicin empirically to treat patients who are at a high risk of CRE infection. Empiric treatment continues until the pathogen is confirmed, which typically takes 2 to 3 days. Following pathogen confirmation, definitive treatment begins either with the same drug(s) used for empiric treatment or with different drug(s), depending on numerous factors including the identity and susceptibility of the pathogen, as well as patient response to empiric therapy. We estimate the total number of cUTI, pneumonia or bloodstream infections treated empirically in the United States and the EU 5 was approximately eight million in 2014. We estimate that approximately 1.4 million of these empirically treated cases involved consultation with an infectious disease physician, a proxy for the number of more complicated cases or serious infections, including suspected MDR infections. This smaller subset of empirically treated patients is a more relevant population in which plazomicin might be prescribed to provide empiric treatment for CRE, depending on a number of CRE risk factors, including patient colonization with CRE and high incidence of CRE in the hospital unit.

If approved, we intend to focus our initial commercial efforts on the U.S. market, which we believe represents the largest single market opportunity for plazomicin. We plan to use a targeted U.S. sales force to promote plazomicin to hospital-based healthcare professionals where MDR infections, including CRE, are concentrated in resistance hotspots, including New York City, Chicago, and other major population centers, either alone or with support from a commercialization partner. In key markets outside of the United States, including Europe, Asia, and Latin America, we believe we can maximize the value of plazomicin through licensing full product rights to one or more global or regional commercialization partners who have local market expertise. By

collaborating with companies that have an existing commercial presence and experience in targeted geographic markets, we believe we can efficiently maximize plazomicin’s commercial potential.

Plazomicin Development Program

We are developing plazomicin, our lead product candidate, for the treatment of serious bacterial infections due to MDR Enterobacteriaceae in patients with limited or no alternative treatment options. These include patients with cUTI or AP due to MDR Enterobacteriaceae, including ESBL-producing isolates and CRE. Our successful Phase 2 trial evaluating the efficacy of plazomicin compared with levofloxacin in patients with cUTI provides evidence of efficacy and safety against Enterobacteriaceae infections in general, including demonstration of a clinical cure in five plazomicin-treated patients whose baseline pathogen had an ESBL phenotype. Our Phase 3 EPIC study is designed to demonstrate evidence of efficacy and safety of plazomicin in cUTI due to Enterobacteriaceae. Given the established efficacy of aminoglycosides in treating urinary tract infections and the positive results observed in our Phase 2 study of plazomicin in this indication, we believe, if similar results are observed in Phase 3, that the Phase 3 EPIC trial would provide a path to market for plazomicin. We believe our Phase 3 CARE trial will provide important data about plazomicin’s potential in treating patients with CRE infections, where there are limited treatment options currently available. We expect top-line data from CARE in the second half of 2017, at approximately the same time as the top-line data from EPIC. We have received FDA fast-track designation for plazomicin for the treatment of serious and life-threatening CRE infections and QIDP designation in multiple indications. We believe our currently planned development program, if successful, will also be acceptable to support a marketing application for plazomicin in the EU, based on feedback obtained through the EMA scientific advice procedure.

Key elements of our current program to develop plazomicin for the treatment of serious bacterial infections due to Enterobacteriaceae, including CRE, are outlined in the table below:

 

 

 

Phase 3 EPIC Trial of Plazomicin for the Treatment of cUTI

Due to the established efficacy of aminoglycosides in treating urinary tract infections and our positive Phase 2 study of plazomicin in this indication, we believe that our Phase 3 EPIC trial provides a high probability of technical and regulatory success and a clear path to market for plazomicin. Given plazomicin’s differentiated activity against MDR Enterobacteriaceae and the critical need for new drugs to treat infections caused by these organisms, we have designed our Phase 3 EPIC trial to generate data regarding the efficacy of plazomicin compared to meropenem against susceptible and MDR Enterobacteriaceae. By focusing enrollment in regions with a relatively high prevalence of ESBL-producing Enterobacteriaceae in this indication and utilizing a carbapenem comparator, we believe that positive efficacy data from this trial will provide the basis for FDA approval and could position plazomicin as an alternative to carbapenems in the treatment of urinary tract infections due to ESBL-producing and other MDR gram-negative pathogens.

The first patient in our global Phase 3 EPIC trial for the treatment of cUTI and AP was enrolled in January 2016. Our goal is to be fifty percent enrolled in this Phase 3 EPIC trial by the U.S. fall of 2016. Then, we would expect enrollment to accelerate and to complete enrollment in 2017. Further, we expect top-line results for our Phase 3 EPIC trial and an NDA submission for plazomicin in the second half of 2017.

Trial Design

Our Phase 3 EPIC trial is a randomized, multicenter, multinational, double-blind study of the efficacy and safety of plazomicin in the treatment of cUTI, including AP, in adults, compared with meropenem and allows an optional switch to oral therapy. Patients with a clinical diagnosis of cUTI, including AP, requiring at least four days of treatment with IV antibiotic therapy are eligible for enrollment. Patients will be randomized 1:1 to plazomicin or meropenem. Patients randomized to plazomicin are receiving a dose up to 15 mg/kg as a 30-minute IV infusion followed 8 and 16 hours later by matching placebo. Meropenem is being administered as a 1.0 gram IV infusion every eight hours. Dosing adjustments of both plazomicin and meropenem, including adjustment of dosing schedule, may be required based on renal function. When clinically appropriate, and after a minimum of four days of blinded IV study drug have been administered, patients may switch to open-label oral levofloxacin (250 or 500 mg once daily, depending on renal function) to complete a total of 7 to 10 days of therapy (IV plus oral). Efficacy will be determined by assessments of clinical and microbiological response. The primary efficacy endpoint is the composite microbiological eradication and clinical cure rate at both the Day 5 and TOC visits.

The following figure provides an overview of our Phase 3 EPIC trial:

Dosing Strategy for Phase 3 EPIC Study

In the Phase 3 EPIC trial, patients randomized to receive plazomicin will receive a dose of up to 15 mg/kg once daily. The dosing regimen is based on the PK, safety, and efficacy profile of plazomicin observed in Phase 1 studies and a Phase 2 study in patients with cUTI including AP. Based on our Phase 2 data, TDM will not be used to guide dosing in the Phase 3 EPIC trial.

Projected Benefit of Plazomicin

We have reached agreement with the FDA on the design of the Phase 3 EPIC trial as a non-inferiority trial comparing plazomicin to meropenem with a 15% non-inferiority margin and a corresponding sample size of approximately 530 patients. In addition, we have agreement with FDA that the plazomicin cUTI program, comprising the Phase 2 cUTI trial and the Phase 3 EPIC trial, will satisfy the FDA’s requirements for a safety database.

We believe that the effect size seen in the microbiologically evaluable (ME) population in the phase 2 study is the most representative measure of the efficacy of plazomicin in this indication. The 89% microbiological eradication rate demonstrated at the test-of-cure visit 7 days after completion of therapy in this population was similar to the comparator, levofloxacin, and to historical response rates reported with carbapenems such as meropenem. Assuming this response rate is observed in the Phase 3 EPIC trial, we believe that we shall be able to demonstrate non-inferiority of plazomicin to meropenem with a 15% non-inferiority margin and one‑sided significance level of 0.025 for the co-primary endpoints of microbiological eradication and clinical cure at the Day 5 and test-of-cure visits. Demonstration of non-inferiority to meropenem, a carbapenem antibiotic considered to be a last line of defense, in patients with cUTI, including a subset with MDR pathogens, will provide the basis for FDA approval and could position plazomicin as an alternative to carbapenems in the treatment of urinary tract infections due to ESBL-producing and other MDR gram-negative pathogens.

Phase 3 CARE Trial of Plazomicin for the Treatment of CRE

Given the critical need for new drugs to treat infections caused by CRE and given plazomicin’s differentiated in vitro activity and in vivo efficacy against this pathogen, we have designed our Phase 3 CARE trial to position plazomicin as a preferred drug for the treatment of CRE. By focusing on difficult-to-treat pathogens against which plazomicin has excellent nonclinical activity, instead of a broader population of pathogens, we believe we have a greater probability of demonstrating the clinical differentiation of plazomicin. In addition, we believe the Phase 3 CARE study will provide important data regarding the safety and efficacy of plazomicin in patients with severe infection and significant co-morbidities. Because these factors have the potential to confound the efficacy and safety profile of the treatment under investigation, these types of patients are generally excluded from traditional antibiotic studies, leaving physicians with little information to guide therapy in patients with the highest need.

We enrolled our first patient in our global Phase 3 CARE trial for the treatment of serious CRE infections in September 2014. We have worked closely with the FDA to amend the protocol for the Phase 3 CARE trial with the goal of enhancing patient enrollment. In the second quarter of 2015, we began implementing the first protocol amendment (“Amendment No. 1”) that expanded inclusion/exclusion criteria and modified the primary endpoint to include disease-related complications as well as mortality. In the third quarter of 2015, we began implementing a second protocol amendment (“Amendment No. 2”) that added a single-arm plazomicin cohort (“Cohort 2”) that allows enrollment of patients with CRE infections who are not eligible for the randomized study arms (“Cohort 1”). Expanded eligibility in Cohort 2 includes patients with cUTI/AP caused by CRE, a patient population with significant unmet medical need, as well as patients with infections resistant to colistin, patients with polymicrobial infections, and patients with lower Acute Physiology and Chronic Health Evaluation II (“APACHE II”) scores. We expect Cohort 2 to increase enrollment in Cohort 1 of the Phase 3 CARE trial and to generate important clinical data for plazomicin treatment in a broader range of patients with CRE infections, including cUTI. We plan to analyze and submit early data from the Cohort 2

plazomicin treatment arm to a medical meeting for presentation in 2016. The Special Protocol Assessment (“SPA”) agreed to with the FDA for the Phase 3 CARE trial is no longer effective and we do not intend to request a new SPA.

Despite enrollment improvements following the implementation of Amendment Nos. 1 and 2, we have now concluded that it is not feasible to enroll 360 patients in Cohort 1 of the Phase 3 CARE study. We plan to stop enrollment in the Phase 3 CARE study in 2017 when we expect to complete enrollment in the Phase 3 EPIC study. We expect top-line data from the Phase 3 CARE trial in the second half of 2017, at approximately the same time as we expect to report top-line data from the Phase 3 EPIC study, and we expect to enroll up to 100 patients in the Phase 3 CARE study. Cohort 1 of our Phase 3 CARE study was originally planned and the size estimated based on a superiority design. With the reduced expected sample size, the study will not be powered to demonstrate superiority but we still expect the same trend in improvement with the plazomicin-based regimen compared to the comparator arm. Based on our discussions with the FDA regarding the expected reduced sample size, if successfully completed, we intend to include the data from this Phase 3 CARE study along with the data from our ongoing Phase 3 EPIC study in an NDA submission for approval of plazomicin for the treatment of cUTI; however, at this time, we believe it is unlikely that the data from this Phase 3 CARE study will support additional indications for plazomicin.

We plan to submit the Phase 3 CARE study results as supportive data with the plazomicin NDA based on our Phase 3 EPIC trial and to submit the results to a peer-reviewed journal and for presentation at a medical meeting in 2017. We have reviewed and discussed this scenario with Infectious Disease opinion leaders and clinicians, who have indicated their support for this approach and timeline. Based on physician market research, we believe the Phase 3 CARE study will provide important and meaningful data regarding the efficacy, safety, microbiology, and dosing, as well as important health economic data, to better inform their use of plazomicin in the treatment of patients with CRE infections.

Trial Design

Our Phase 3 CARE trial contains a randomized, open-label cohort (Cohort 1) designed to evaluate the efficacy and safety of plazomicin as compared to colistin when each is combined with a second antibiotic in the treatment of patients with bloodstream infections (BSI) or hospital-acquired pneumonia (HABP, VABP) due to CRE. An additional cohort of patients (Cohort 2) with BSI, HABP, VABP, cUTI or AP due to CRE and who are not eligible for enrollment in Cohort 1 are being enrolled into a single-arm cohort of this study and treated with plazomicin-based therapy. Both cohorts of the trial are enrolling patients whose causative pathogen is either presumed or confirmed to have an MIC ≥ 4 µg/mL for the broadest spectrum carbapenems, which are referred to as type 2 carbapenems. These patients are reported to have poor outcomes, including a high mortality rate, when treated with currently available therapeutic options, including colistin, the comparator in this study, providing us with the opportunity to provide important and meaningful data regarding the efficacy, safety, microbiology and dosing of plazomicin in the treatment of patients with CRE infections.

The following figure provides an overview of our Phase 3 CARE trial:

 

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In both cohorts, patients with presumed or confirmed infection with CRE are eligible for enrollment. Efficacy will be determined by assessments of survival, significant disease-related complications, clinical response, and microbiological response.

In Cohort 1, patients are randomized 1:1 to a plazomicin- or colistin-based regimen. At the time of randomization, one adjunctive antibiotic, either tigecycline or meropenem, is selected by the investigator to be combined with plazomicin or colistin. Cohort 1 excludes patients with colistin-resistant infections, refractory septic shock, or specified clinical syndromes that require more than 14 days of antibiotic therapy. We are also using the APACHE II score, a measure of the severity of disease that ranges from 0 to 71, as part of our enrollment criteria. Higher APACHE II scores correspond to more severe disease and a higher risk of death. Patients are eligible for enrollment in Cohort 1 with an APACHE II score from 15 to 30. Patients are being stratified by infection type (bloodstream or pneumonia), APACHE II score, and time from the initiation of empirical therapy for the patient’s infection to randomization for this trial. Patients randomized to plazomicin are receiving an initial dose up to 15 mg/kg as a 30-minute IV infusion. The initial dose and dosing interval is being determined by baseline renal function. Subsequent plazomicin doses are being individualized based on changes in renal function and by TDM, using our in vitro assay. The primary efficacy endpoint in Cohort 1 is all-cause mortality at Day 28 or significant disease-related complications. Secondary efficacy parameters include clinical failure, all-cause mortality at Day 28, time to death through Day 28 and all-cause mortality at Day 14. Microbiological assessments include the evaluation of microbiological response and the incidence of development of decreased susceptibility to plazomicin or colistin.

In Cohort 2, patients with BSI, hospital-acquired pneumonia, cUTI or AP due to CRE and who are not eligible for enrollment in Cohort 1 are enrolled and treated with plazomicin-based therapy. Patients with BSI or pneumonia will receive study drug therapy for 7 to 14 days while those with cUTI will receive plazomicin therapy for 4 to 7 days with an option to switch to oral antibiotic therapy after a minimum of 4 days of IV administration of plazomicin, to complete a total of 7 to 14 days of therapy (IV + oral). Descriptive efficacy endpoints in Cohort 2 include clinical and microbiological response in all patients and all-cause mortality at Day 28 or significant disease-related complications and all-cause mortality at Day 14 and Day 28 in patients with bloodstream infection or pneumonia.

Dosing Strategy for Phase 3 CARE Study Using Pharmacometric Modeling

We used recent innovations in PK/PD modeling to predict that the plazomicin dosing regimen in the Phase 3 CARE trial will be adequate for efficacious treatment of CRE infections. This approach integrates information on the distribution of MICs for the target pathogen, based on recent microbiology surveillance data, exposure-response assessments in animal models, and PK data from our Phase 1 and 2 trials to define the appropriate dosing regimen for efficacy. Based on this analysis, we predict that with our Phase 3 CARE dosing regimen 92% of patients will achieve the levels of plazomicin in their blood or lung tissue predictive of successful treatment of CRE infection in vivo . This level is considerably greater than what can be achieved with current dosing of other aminoglycosides or other therapies such as colistin and tigecycline.

In addition, dosing of plazomicin in our Phase 3 CARE trial is being individualized for each patient based on changes in renal function and by TDM. The use of TDM for currently marketed aminoglycosides, combined with real-time PK assessments, has been shown to help achieve target drug exposures, leading to improved patient outcomes and reduced length of hospital stays. Plazomicin concentration in plasma will be determined using an investigational in vitro assay. In November 2013, we received an Investigational Device Exemption approval from the FDA for use of the assay in the trial.

Projected Benefit of Plazomicin

To estimate the potential size of the treatment benefit for plazomicin over colistin in Cohort 1 of our Phase 3 CARE trial, we performed a meta-analysis of data from three observational studies describing the outcome of 309 patients with BSIs due to carbapenemase-producing Enterobacteriaceae. We segregated patients into two groups:

We observed a 35% mortality rate in the High MIC group and a lower 14% mortality rate in the Low MIC group. We interpret the absolute mortality difference of 21% (95% confidence interval: 11%-30%) between the two groups to be an indication of the potential magnitude of the treatment benefit that might be observed when an effective (e.g., plazomicin) versus less effective (e.g., colistin) antibiotic therapy is used to treat patients whose isolates have a carbapenem MIC ≥ 4 µg/ml.

In our estimation of the plazomicin treatment benefit, we have assumed that a plazomicin-based regimen would result in approximately a 10-15% absolute reduction in mortality or significant disease-related complications from a baseline mortality rate of 35% in the colistin comparator group.

Nonclinical Data Support the Use of Plazomicin for the Treatment of MDR Enterobacteriaceae Infections

Plazomicin has been tested extensively in vitro, in animal efficacy models, and in safety pharmacology and toxicology studies. As noted above, nonclinical assays are generally predictive of clinical efficacy for antibacterials, particularly in the case of a well-understood class such as aminoglycosides.

In vitro Activity Against Enterobacteriaceae, Including CRE

The results from in vitro global surveillance studies completed in 2014 against a broad group of clinical Enterobacteriaceae isolates demonstrate that plazomicin has potency against Enterobacteriaceae in general. In these studies, we measured the potency of plazomicin and comparator drugs by determining the concentration of drug required to inhibit the growth of 50% and 90% of the isolate set. We refer to these measurements as the MIC ₅₀ and MIC ₉₀ , respectively. The table below summarizes the in vitro activity of plazomicin and several other commercially-available antibiotics from various different drug classes commonly used to treat Enterobacteriaceae infections against 5,517 clinical Enterobacteriaceae isolates.  

N=number of strains within the overall set of 983 strains tested vs. the given antibiotic.

Notes: CLSI 2012 susceptibility criteria were used except for tigecycline and colistin, for which EUCAST 2013 criteria were used because CLSI criteria were not available.

As shown in this table, plazomicin was the most potent aminoglycoside tested with an MIC ₅₀ of 0.5 and MIC ₉₀ of 2, meaning that at least 50% of these isolates were inhibited by a concentration 0.5 µg/mL or less and 90% of these isolates where inhibited by a concentration of 2 µg/mL or less. Such concentrations are easily achievable in humans with current dosing.

Results from multiple susceptibility testing studies against MDR Enterobacteriaceae demonstrate that plazomicin remains potent against strains resistant to several other classes of antibiotics, including carbapenems and other aminoglycosides. We can determine the likely activity of plazomicin against MDR Enterobacteriaceae, including CRE, encountered in the hospital setting globally by testing a large number of clinical isolates collected from unique patients with different types of infections from hospitals around the world. Using similar methodology as the surveillance studies, we determined the MIC ₅₀ and MIC ₉₀ of plazomicin and comparators against a large number of clinical CRE isolates. The table below summarizes the results of this work.

Key: 

N=number of strains within the overall set of 983 strains tested vs. the given antibiotic.

Notes: CLSI 2012 susceptibility criteria were used except for tigecycline and colistin, for which EUCAST 2013 criteria were used because CLSI criteria were not available. Isolates selected had an MIC ≥ 2 µg/mL for any type 2 carbapenem, a value defined as non-susceptible for this class according to CLSI 2012 susceptibility criteria. Plazomicin has not yet been assigned susceptibility criteria by these organizations.

As shown in the table above, at least 50% of the tested isolates were non-susceptible to all of the marketed drugs except for gentamicin, tigecycline, and colistin, while plazomicin remained potent (MIC ₅₀ of 0.5 µg/mL or less). This shows the high degree of multi-drug resistance in CRE and the reason tigecycline and colistin are considered among the only options for treatment of infections caused by CRE. All of the MIC ₉₀ values of the marketed drugs were non-susceptible, meaning that a significant percentage of infections caused by these isolates would be untreatable with available antibiotics. Plazomicin maintained an MIC ₉₀ of 2, meaning that at least 90% of these isolates were inhibited by a concentration of 2 µg/mL or less. Overall, 96% of these isolates had a plazomicin MIC of 2 µg/mL or less. Plazomicin showed the same potency against this collection of CRE isolates as was demonstrated in the larger collection of clinical Enterobacteriaceae isolates described above.

The graphs below display the activity of each of plazomicin and two commercially available aminoglycosides, amikacin and gentamicin, against clinical isolates of Enterobacteriaceae that are resistant to carbapenems due to the expression of two of the three main types of carbapenemases, serine carbapenemase and oxacillinase. The MIC of each of the tested drugs is expressed along the horizontal axis of the graph and the percent of the strains inhibited by the tested drug at a given MIC is expressed along the vertical axis. The number specified in the title indicates the number of strains that were included in each study.

As exemplified in the above graphs, plazomicin retained activity against 90% or more of the tested isolates at an MIC of less than or equal to 1 µg/mL, and was overall more potent than amikacin and gentamicin.

The following set of graphs displays the activity of each of plazomicin, amikacin, and gentamicin against clinical isolates of Enterobacteriaceae that are resistant to carbapenems due to the expression of the third main type of carbapenemase, metallo-beta-lactamase, or MBL. Activity against isolates with NDM-1, which is a particular type of MBL, is shown separately from isolates with other MBLs.

 

Plazomicin retained activity with an MIC of less than or equal to 1 µg/mL against 90% or more of the tested isolates with an MBL, except for those with NDM-1, where plazomicin was only active against one of the 17 isolates tested. Plazomicin, amikacin, and gentamicin each display very poor activity against the NDM-1 isolates because this resistance mechanism and a particular

aminoglycoside resistance mechanism, ribosomal methyltransferase, commonly occur together in the same isolate. Ribosomal methyltransferase, which renders plazomicin and most commercially available aminoglycosides inactive, and NDM-1 are generally limited to some countries in Asia, including India, although there have been isolated cases of infections by bacteria carrying such resistance mechanisms elsewhere, including the United States.

In vivo Efficacy Against CRE

Plazomicin has demonstrated efficacy against CRE in multiple efficacy studies in animal models, and was consistently more potent than either tigecycline or colistin at doses equivalent to the clinical dose for each drug. In these studies, the PK of plazomicin was measured so the effect of its concentration in blood or lung tissue could be evaluated. Because animals and humans metabolize and excrete drugs at different rates, the dose of plazomicin was "humanized" so the concentration of plazomicin over time in the animal closely matched the human concentration over time measured from our clinical studies. We used two different mouse models of bacterial infection in which a measured amount, or inoculum, of a CRE strain was introduced into either the thigh muscle or lung of the animal, allowed to grow for two hours, and then treated with an antibiotic for one day. We determined efficacy in the animal model by measuring the amount of bacteria, expressed as colony-forming units per gram (CFU/g), in treated as compared to untreated tissues, and then comparing either the increase or decrease in the amount of bacteria versus the original inoculum, or stasis.

The graph below shows the results of plazomicin, colistin administered as its prodrug used in the treatment of patients, and tigecycline against eight CRE strains in a mouse thigh infection model.  

For these thigh infection studies, we selected CRE isolates from hospitalized patients that were primarily susceptible (MIC ≤ 1 µg/mL) to colistin and tigecycline by EUCAST criteria. The MICs of the antibiotics against the eight tested CRE isolates are shown in the table below.

 

Plazomicin demonstrated efficacy by reducing the amount of bacteria by up to 100 times compared to the original inoculum at doses lower than the equivalent clinical dose. In contrast, colistin and tigecycline displayed poor efficacy, despite having MICs against most of the isolates at or below the value considered to be susceptible. This result is consistent with the high mortality rates observed when colistin and tigecycline are used to treat serious CRE infections.

Efficacy Against Rapidly Lethal Plague and Tularemia Pneumonia in Non-Human Primate Models

Plazomicin has demonstrated efficacy in non-human primate models against infections caused by the biothreat pathogens Yersinia pestis and Francisella tularensis . These two bacteria species are considered potential bioweapons and are the causative

agents for plague and tularemia, respectively. The primary site of infection in these models is the lung, and the pathogens cause a rapidly lethal pneumonia that spreads to the bloodstream and other organs in the absence of effective therapy. In these models, animals were exposed to an aerosol spray of the pathogen and monitored for signs of fever indicating an active infection. PK was also measured. Once fever was detected, treatment was started with either a fixed dose of plazomicin (six animals for each treatment group) or a placebo and continued for 10 days. In one arm of the tularemia study, treatment was withheld until 24 hours after fever was observed allowing additional time for the infection to establish and worsen. Across these studies, almost all plazomicin-treated animals were cleared of their bloodstream and lung infections even when dosed below levels equivalent to our Phase 3 CARE clinical dose. However, in the plague studies some plazomicin-treated animals died due to infections that spread to the central nervous system, where we believe plazomicin does not penetrate. In contrast, none of the placebo control-treated animals in these studies survived. The strong efficacy of plazomicin against these diseases in a primate model suggests that it may be effective in similar serious infections in humans.

Nonclinical Safety Studies

We have studied plazomicin in industry-standard in vitro and in vivo toxicology models designed to characterize the potential side effects and safety parameters of drugs. These studies are typically required by regulatory agencies such as the FDA prior to use of the drug in humans. In our studies, plazomicin’s primary toxicological effect was on the kidney. In animals, damage to the kidney increased and organ function deteriorated in proportion to plazomicin dose. This effect was observed to be reversible. After plazomicin dosing ceased, kidney function returned to normal or near normal, and the kidney damage was repaired. These results are consistent with the nonclinical toxicity and clinical safety of other aminoglycosides. Reversible kidney toxicity is a known side effect of these drugs. In head to head studies in animals, we observed the relationship between plazomicin dose and effect on the kidney and its function to be similar to that of gentamicin.

Aminoglycosides are also associated with hearing loss and impaired balance. Both of these functions are controlled by organs in the inner ear. To evaluate the potential for hearing loss with plazomicin treatment, we studied plazomicin in an animal model designed to detect hearing loss associated with drug treatment. In this study, plazomicin did not impact hearing function or cause detectable damage to the inner ear. The ability of this model or other available nonclinical models to predict drug-related hearing loss has not been firmly established.

Additional Nonclinical Studies to Support an NDA

We have completed and will conduct additional nonclinical studies to support an NDA for plazomicin. At the time of the NDA, we expect to have completed many microbiological studies of plazomicin, including multi-year assessments of its activity against contemporary clinical isolates of Enterobacteriaceae and other bacterial species from the United States and other countries. Our BARDA contract includes an unexercised option for additional funding to support ongoing or planned studies. We believe that the planned extensive nonclinical study package, when combined with the data we expect to generate from our pivotal Phase 3 EPIC trial and our Phase 3 CARE trial, including a projected total safety database of approximately 300 patients, would be sufficient to support an NDA for plazomicin. Other studies we have completed or plan to conduct include industry-standard experiments to characterize the distribution and excretion of plazomicin in vivo , as well as in vitro studies of the potential for plazomicin to interact with enzymes associated with drug distribution and metabolism.

Plazomicin Clinical Data Are Supportive of Continuing Trials of Plazomicin

Our clinical trial data to date for plazomicin indicate an acceptable safety profile, predictable PK, and lung penetration that is similar to other aminoglycosides. In addition, our Phase 2 trial demonstrates that plazomicin has microbiological and clinical efficacy in treating cUTI that is similar to levofloxacin, an approved antibiotic in the fluoroquinolone class commonly used for the treatment of this infection.

Plazomicin has been studied in four Phase 1 clinical trials and one Phase 2 clinical trial. A total of 239 healthy subjects and patients enrolled in completed trials have received plazomicin at doses ranging between 1 and 20 mg/kg administered as an IV infusion. In the Phase 1 trials, 82 subjects received 15 mg/kg administered either as a single dose or once daily for up to five days. In the Phase 2 trial, 74 patients with cUTI received 15 mg/kg of plazomicin administered once daily for up to five days.

Phase 1 Clinical Trials

In our Phase 1 trials we demonstrated that plazomicin displays good tolerability and safety in single doses up to 20 mg/kg and multiple doses of up to 15 mg/kg of plazomicin administered once daily for five days. Common adverse events in the Phase 1 studies (occurring at a frequency greater than 5% in all subjects) were headache, numbness or tingling, dizziness, nausea, and drowsiness. All adverse events were mild or moderate in severity, and the overall frequency of events was similar between the plazomicin and placebo groups. In a substudy of our second Phase 1 trial (003) that investigated lung penetration of plazomicin, five subjects experienced mild to moderate transient hypotension at the end or soon after a single dose, consisting of a 10-minute

infusion of 15 mg/kg of plazomicin. Following this trial, the infusion period was increased to 30 minutes for all subsequent trials. In a focused cardiovascular trial, plazomicin showed no clinically significant potential to cause arrhythmias, and all adverse events were mild or moderate in severity.

Pharmacokinetic data collected in these trials showed dose proportionality and linearity in plasma within the tested plazomicin dose range. Lung penetration of plazomicin based on epithelial lining fluid levels was similar to the range of values reported for amikacin, another aminoglycoside agent, in bronchial secretions of normal and infected subjects. Phase 1 trials also showed that, as with other aminoglycosides, plazomicin is mainly cleared through the kidneys. A trial in subjects with moderate or severe kidney function impairment confirmed that plazomicin PK is significantly altered in these subjects relative to subjects with mild or normal kidney function. This trial demonstrated that, as with other aminoglycosides, dose adjustment will be necessary in patients with moderate or severe impairment.

Phase 2 Clinical Trial

Our Phase 2 multicenter, double-blind, randomized, active comparator-controlled trial, evaluated the efficacy of plazomicin compared with levofloxacin in 145 patients with cUTI including acute pyelonephritis. We selected cUTI as the target infection for our Phase 2 trial because cUTIs are one of the most common hospital-acquired infections, and the majority of cUTIs across all geographic regions are caused by Enterobacteriaceae, most commonly E. coli . We selected levofloxacin as the comparator drug for this trial since it is considered an empiric standard of care for cUTI and it shares many similar properties to plazomicin, such as concentration-dependent killing of bacteria, once-daily dosing, and achievement of high urinary concentrations.

During the first phase of the trial, patients were randomized 1:1:1 to 10 mg/kg plazomicin, 15 mg/kg plazomicin, or 750 mg levofloxacin, each treatment being administered once daily for five consecutive days. During the second phase of the trial, the 10 mg/kg treatment arm was eliminated and patients were randomized 2:1 to 15 mg/kg plazomicin or levofloxacin 750 mg.

Efficacy was assessed through microbiological and clinical outcomes at end of treatment, at test of cure, and at a long-term follow-up visit. The primary efficacy endpoint was the proportion of patients who attained microbiological eradication at the test of cure visit. This endpoint was determined for two analysis populations: a modified intent-to-treat ("MITT") population which included all randomized patients with at least one causative pathogen isolated from an acceptable urine specimen before treatment; and a microbiologically evaluable (“ME”) population which was a smaller subset of the MITT population and included patients who met key study inclusion criteria, received study treatment for a pre-specified duration and had an acceptable urine specimen at test of cure.

As shown in the table below, the proportion of patients who achieved microbiological eradication was similar for each of the plazomicin (10 mg/kg and 15 mg/kg) and levofloxacin treatment groups in both analysis populations. Microbiological eradication rates for the MITT population in our Phase 2 trial were lower than the ME population. This is in part due to the fact that the MITT population, but not the ME population, had a proportion of patients with an unknown/indeterminate microbiologic outcome primarily because samples at the test of cure visit were not obtained.

 

The secondary efficacy endpoint of the trial was clinical outcome. In the plazomicin and levofloxacin treatment groups, a majority of the clinically evaluable patients (66.7%–78.6%) were assessed as cured, with resolution of baseline signs and symptoms of infections. Results for the ME and MITT groups were similar. The majority of isolates collected from patients in these populations during the trial were non-MDR Enterobacteriaceae.

 

Overall in the Phase 2 trial, plazomicin administered at doses of 10 or 15 mg/kg once daily for five days was generally well tolerated. There were no serious adverse events assessed as related to treatment with plazomicin. Five patients (four in the plazomicin 15 mg/kg group and one in the levofloxacin group) prematurely discontinued study drug due to adverse events. Overall, adverse events were experienced by 7 of 22 patients (31.8%) in the plazomicin 10 mg/kg groups, 26 of 74 patients (35.1%) of patients in the plazomicin 15 mg/kg group, and 21 of 44 patients (47.7%) in the levofloxacin 750 mg group. Most of these were assessed as mild or moderate in severity. Adverse events occurring in at least two patients are shown in the table below.

 

The hearing and balance of patients were closely assessed, as aminoglycosides are known to have safety liabilities associated with these functions. One plazomicin-treated patient reported mild transient vertigo and another plazomicin-treated patient reported mild unilateral tinnitus that persisted and was considered permanent. Neither patient tested positive for changes in hearing function or balance. Kidney function as measured by mean serum creatinine values remained generally stable over the trial. Two patients treated with 15 mg/kg plazomicin had adverse events associated with renal function. Both events were assessed as mild in severity and involved increases in serum creatinine of 0.5 mg/dL and 0.7 mg/dL respectively, which returned to near-baseline values by the last follow-up visit. Two additional patients treated with 15 mg/kg plazomicin experienced serum creatinine abnormalities (an increase from 1.2 to 2.0 mg/dL and an increase from 0.8 to 1.5 mg/dL), neither of which were classified as adverse events, and that returned towards baseline at the last follow-up visit.

The results of this Phase 2 trial demonstrated the efficacy of plazomicin in patients with cUTI that was similar to the efficacy of levofloxacin in terms of achieving both microbiological eradication of the causative pathogen of the infection and clinical cure. Furthermore, plazomicin was generally well tolerated in this patient population.

Research Discovery and Development Programs

Beyond our plazomicin program, our research teams are focused on discovering novel medicines for serious infections caused by MDR pathogens including Acinetobacter baumannii and Pseudomonas aeruginosa.   The CDC has categorized these pathogens as "serious" threats requiring prompt and sustained action. Our goal is to nominate a clinical candidate from our research programs in 2016 and to file an Investigational New Drug ("IND") application in 2017. Clinical trials for products from our research programs will require additional funding.

Small Molecule Drug Discovery Program

LpxC is an essential enzyme for the formation of bacterial membranes in gram-negative bacteria that is highly conserved among gram-negative species. Inhibition of LpxC disrupts the structural integrity of the outer bacterial membrane, reducing its capacity to protect the cell and retain vital molecules in the space between the outer and inner membrane, leading to bacterial cell death.

Using our discovery engine, we made improvements to known LpxC inhibitors to generate a series of promising molecules that showed greater activity against gram-negative pathogens, improved safety in preclinical models, and better pharmaceutical properties. Given their novel mechanism of action, compounds generated in this program demonstrate no cross-resistance with current antibiotics and therefore retain activity against strains harboring resistance mechanisms that inactivate many other marketed antibiotics. This is illustrated in the figure below with respect to ACHN-975 (a compound we previously pursued in a clinical trial) which demonstrates potent activity against a large set of almost 1,000 P. aeruginosa clinical isolates. The figure also shows the potency of other antibiotics commonly used to treat infections caused by P. aeruginosa infections. For these drugs, the dotted lines begin at the MIC value considered non-susceptible, according to 2012 CLSI criteria, demonstrating the current scarcity of effective therapeutic options for P. aeruginosa infections. None of the other drugs had a susceptible MIC 90 against the test set.

We are currently pursuing an advanced series of compounds that are active against P. aeruginosa , supported by up to $5.0 million in funding from a contract with NIAID, with the goal of identifying those with potent antibacterial activity and an improved safety profile for selection of a candidate for IND-enabling studies in 2016.

Therapeutic Antibody Discovery Program

Therapeutic monoclonal antibodies ("mAbs") have several distinguishing features that make them attractive as antibacterial agents. First, we believe they will not be impacted by resistance mechanisms that inactivate existing small molecule-based antibiotics. Second, they are highly specific to their target, greatly reducing the potential for toxicity due to off-target binding. Third, humanized or fully human mAbs are well tolerated with low immunogenicity in patients. Finally, mAb therapeutics can achieve sustained exposure with a typical half-life of around three weeks, potentially enabling an antibacterial antibody to prevent or cure an infection following a single intramuscular or intravenous dose.

Our goal is to generate mAbs that can be deployed to treat infections caused by MDR Acinetobacter baumannii and other gram-negative pathogens, such as Pseudomonas Aeruginosa. Based on our experience developing agents for gram-negative pathogens, we have identified a set of targets and a corresponding screening process for each target that we believe to be well suited for therapeutic mAb discovery. In addition to our strong experience in antibacterial target selection, we have built an innovative antibody discovery platform designed to quickly identify rare-functional antibodies targeting the most challenging pathogens. If successful, our unique approach has the potential to transform the way gram-negative infections are treated by enabling a safe, single-dose primary cure of infection or long-lasting step-down therapy upon discharge from the hospital.

Government Contracts

Biomedical Advanced Research and Development Authority (“BARDA”)

Our program to develop plazomicin for the treatment of serious bacterial infections due to MDR Enterobacteriaceae, including CRE, as well as for disease caused by certain bacterial biothreat pathogens, is partially funded under a contract with BARDA, an agency of the U.S. Department of Health and Human Services. This contract was awarded in August 2010 and consists of a base amount as well as three options, two of which have been exercised. The base amount and the two exercised options total $103.8 million of obligated funding, of which a total of $77.1 million has been recorded as revenues as of December 31, 2015, with $26.7 million remaining available. The potential funding amount under the unexercised option has not yet been determined. The unexercised option relates to the conduct of a clinical trial, certain nonclinical studies to support an NDA and certain nonclinical biodefense studies.

Overall, the contract calls for the development, manufacturing, nonclinical and clinical evaluation of, and regulatory filings for, plazomicin as a countermeasure for diseases caused by antibiotic-resistant pathogens. These pathogens include bacteria associated with serious hospital-acquired infections, such as CRE, as well as biothreats, such as F. tularensis , which causes tularemia, and Y. pestis , which causes plague. As the prime contractor, we are responsible for all technical and regulatory activities under a research plan proposed by us and accepted by BARDA. From time to time, we may propose a change to the research plan to BARDA, and BARDA may or may not choose to accept the change to the research plan, along with any associated additional costs, subject to the availability of funding, as well as other factors. We are also obligated under the contract to satisfy various federal reporting requirements, including technical reporting with respect to our plazomicin development activities, reporting with respect to intellectual property and financial reporting. In addition, technical documents and regulatory filings may be reviewed by BARDA prior to their finalization and/or submission.

Payments under the contract with BARDA are made in installments as activities are conducted in accordance with the research plan. Payments to us are based on direct costs incurred and allowances for overhead, plus a fee, where applicable. In November 2013, we modified the most recent awarded option such that payments under this option would not exceed $60.4 million, even though the cost of the Phase 3 CARE trial and related expenses may exceed the amount available to us under our BARDA contract for direct costs incurred. Under standard government contracting terms, the government receives only limited rights for government use of certain of our pre-existing data and certain data produced with non-federal funding, to the extent such data are required for delivery to BARDA under the project. The U.S. government receives unlimited rights to use and disclose new data first produced under the project with BARDA funding. The U.S. government is entitled to a nonexclusive, worldwide, royalty-free license to practice or have practiced any patent on an invention that is conceived or first reduced to practice under the project, and may obtain additional rights if we do not elect to retain ownership of a subject invention or if we do not satisfy certain disclosure and patent prosecution obligations with respect to a subject invention. The government’s rights do not include the composition of matter patents related to plazomicin, as these were developed and prosecuted prior to our entry into the BARDA contract and without government funding. The BARDA contract does not entitle the government to any sales royalties or other post-commercialization financial rights.

BARDA is entitled to terminate the project for convenience at any time, and is not obligated to provide continued funding beyond current year amounts allotted from Congressionally approved annual appropriations.

Defense Threat Reduction Agency (“DTRA”)

In June 2007, we entered into a contract with DTRA to develop novel antibacterials for the treatment of biodefense pathogens. In November 2012, DTRA terminated this contract for convenience. We sought payment from DTRA for additional expenses we incurred in connection with this contract, and on April 30, 2015 received $7.1 million.

The DTRA contract related to the funding of our LpxC program. Under the contract’s terms, the U.S. government received rights to use and disclose new data first produced under the project with DTRA funding only to the extent they are related to government applications connected with certain select pathogens. In addition, the U.S. government is entitled to a nonexclusive, worldwide, royalty-free license to practice or have practiced any patent on an invention that was conceived or first reduced to practice under the project, including the composition of matter patent related to ACHN-975 (a compound we previously pursued in a clinical trial), and may obtain additional rights if we do not elect to retain ownership of a subject invention or if we do not satisfy certain disclosure and patent prosecution obligations with respect to a subject invention.

National Institute of Allergy and Infectious Diseases (“NIAID”)

In September 2008, we entered into a five-year contract with NIAID to develop novel antibacterials for the treatment of biodefense pathogens. We received over $21.0 million under this contract, which supported a previous research and development

program that we currently do not intend to advance. Our NIAID contract expired in August 2013. The U.S. government retains certain rights to data and intellectual property generated under the contract.

In July 2014, the Company was awarded a one-year, $0.4 million grant by NIAID to conduct discovery research on novel antibiotics targeting gram-negative bacteria. In July 2015, NIAID extended the grant term through July 31, 2016.

In July 2015, the Company was awarded a contract by NIAID for $2 million through June 30, 2016, with additional funding of up to $3.0 million available if all options are exercised under the contract. $1.3 million of the base award has been recorded as revenues for the year ended December 31, 2015. The U.S. government retains certain rights to data and intellectual property generated under the contract.

For more information regarding the government contracts referred to above see "Risk Factors-Risks Related to Our United States Government Contracts" and "Risk Factors-Risks Related to Intellectual Property-Provisions in our U.S. government contracts, including our contract with BARDA, may affect our intellectual property rights."

Commercial Agreements

ARK Diagnostics, Inc. Development Services Agreement

In August 2013, we entered into a development services agreement with ARK Diagnostics, Inc. ("ARK"). Under this agreement, we and ARK are co-developing an in vitro assay to measure levels of plazomicin in the blood to enable patients to receive safe and efficacious doses of plazomicin. Such an assay would be used to provide therapeutic drug management. ARK is responsible for the manufacture and supply of the developed assay for our plazomicin Phase 3 CARE trial program. Depending on the mutually agreed regulatory approval pathway and commercialization strategy for the assay, we will be required to pay ARK up to an aggregate amount of between $1.0 million and $1.6 million in milestone payments for the achievement of certain development, manufacturing and regulatory milestones, $1.0 million of which have been achieved and paid as of December 31, 2015. Intellectual property rights relating to the assays developed under the contract are jointly owned by us and ARK, but each party retains ownership of its background intellectual property and improvements thereto.

In addition to the co-development activities performed under the agreement, we are required to negotiate in good faith the terms of an agreement for the commercialization of the assay based upon certain core terms outlined in the development services agreement to be included in such a commercialization agreement. Such core terms include that ARK would have the first right to commercialize the assay in the United States and the EU and to manufacture and supply the assay worldwide for commercialization, while we would have the first right to commercialize the assay in any other country or territory, in addition to step-in rights to commercialize the assay in the United States and the EU if ARK elects not to do so. The development services agreement provides that if, by January 2016, we have still not agreed the terms of a commercialization agreement with ARK, ARK will provide us with an interim supply of the finished assay for at least two years following the approval of the NDA for plazomicin and interim supply of components to the assay to have the assay made for us by a third party for a further three years, until five years following the approval of the NDA, at a price that is comparable with the pricing offered by ARK to other distributors. If we still have not agreed with ARK on the terms of a commercialization agreement by January 1, 2018, then at our request, we, ARK and a third-party supplier reasonably acceptable to ARK shall enter into a technology transfer and license agreement, whereby on commercially reasonable terms, ARK would grant to the third-party supplier a license under ARK’s applicable intellectual property and perform a transfer of know-how to such third-party supplier, solely to the extent necessary for the purpose of manufacturing and supplying the assay to us for use or commercialization by us and our designees.

The development services agreement will expire upon the later of the completion of the development services and January 1, 2020. Either we or ARK may terminate for the other party’s uncured material breach, and we may terminate without cause upon 60 days written notice to ARK.

License Agreement with Ionis Pharmaceuticals, Inc. (formerly Isis Pharmaceuticals, Inc.)

On January 25, 2006, we entered into a license agreement with Ionis Pharmaceuticals, Inc. ("Ionis"), pursuant to which Ionis granted us an exclusive license under certain patents relating to aminoglycoside antibacterial compounds and related know-how to develop and commercialize certain novel aminoglycoside antibacterial compounds. We are required to use commercially reasonable efforts to develop and commercialize licensed compounds under the agreement. In consideration for the rights granted to us by Ionis under the license agreement, we issued $1.5 million of our Series A convertible preferred stock to Ionis in 2006. In addition, we are required to make payments to Ionis upon the achievement of specified development and regulatory milestones totaling up to $19.5 million for the first aminoglycoside product developed under the agreement, including $4.0 million that was paid to Ionis in the fourth quarter of 2014 following dosing the first patient in our Phase 3 CARE trial of plazomicin in September 2014, and up to $9.75 million for the second aminoglycoside product developed under this agreement, and to pay Ionis a low double-digit share of non-royalty sublicensing revenues that we receive from sublicensees for the grant of sublicenses under our

agreement with Ionis, provided that the maximum amount we are required to pay Ionis with respect to the sum of all development and regulatory milestones and non-royalty sublicensing revenue payment obligations for plazomicin, as the first aminoglycoside product under the agreement, is $19.5 million. Likewise, our cumulative development and regulatory milestone payment and non-royalty sublicensing revenues payment obligations for a second aminoglycoside product under the agreement with Ionis will not exceed $9.75 million. To date, we have made development milestone payments of $7.0 million to Ionis with respect to plazomicin, $6.5 million of which was paid in cash and $0.5 million of which was paid in the form of our Series B convertible preferred stock. We are also required to pay additional milestone payments of up to $20.0 million in the aggregate upon the first achievement of specified threshold levels of annual net sales of all aminoglycoside products in a calendar year. If any aminoglycoside product, including plazomicin, is successfully commercialized, we will be required to pay royalties to Ionis in the low single digits on worldwide net sales of licensed products by us, our affiliates and sublicensees.

Our license agreement with Ionis will continue for as long as we are obligated to pay royalties to them, which will be on a product-by-product basis until the later of (a) ten years from the date of first commercial sale of an aminoglycoside product covered by the agreement in the United States, Japan or Europe; and (b) the abandonment, revocation, invalidation or expiration of the last valid claim of a patent covered under the agreement which covers such product, not to exceed twenty years after the first commercial sale in the United States, Japan or Europe. Either party may terminate the agreement for the uncured material breach of the other party, and Ionis may terminate the agreement if we fail to make timely payments, subject to a specified cure period. We may also terminate the agreement or the license with respect to a particular product without cause upon 60 days’ notice.

Competition

The pharmaceutical industry is very competitive and subject to rapid and significant innovation. Our potential competitors include major multinational pharmaceutical companies, established biotechnology companies, specialty pharmaceutical and generic drug companies, universities, and other research institutions. Many of our competitors have greater financial resources, as well as larger research and development staff and more experienced marketing and manufacturing organizations. As a result, these companies may obtain regulatory approval more rapidly than we are able to and may be more effective in selling and marketing their products. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. Our competitors may succeed in developing, acquiring or licensing technologies and drug products that are superior to, or more effectively marketed than, plazomicin or any other drug candidate that we are currently developing or that we may develop, which could render our products obsolete and noncompetitive.

The competition in the antibiotics market is intense. Our goal is to establish plazomicin as a leader in the treatment of serious bacterial infections due to MDR Enterobacteriaceae, including CRE. Our clinical development program supports plazomicin’s differentiated profile from both approved and development-stage antibacterials by focusing on the treatment of serious bacterial infections due to MDR Enterobacteriaceae in patients with limited or no alternative treatment options, including patients with cUTI or AP. If approved, plazomicin will face competition from commercially available antibiotics such as tigecycline, which is marketed by Pfizer as Tygacil, ceftazidime-avibactam, which is marketed in the United States by Allergan plc as Avycaz, other aminoglycosides that are generically available (e.g., gentamicin, amikacin, tobramycin), and polymyxins that are generically available (colistin and polymyxin B).

In addition, if approved, plazomicin may face additional competition from antibiotics currently in clinical development. We are aware of other antibiotics currently in development. Allergan plc and AstraZeneca plc continue development of ceftazidime/avibactam (already marketed in the United States) and ceftaroline/avibactam for pneumonia and complicated urinary and intra-abdominal infections. Tetraphase Pharmaceuticals is developing eravacycline for cUTI and intra-abdominal infections, though eravacycline failed to meet its primary endpoint in a recently completed Phase 3 trial in cUTI. The Medicines Company is developing Carbavance™ for cUTIs and MDR gram-negative infections, including CRE. Merck is developing relebactam + imipenem/cilastatin for complicated urinary and intra-abdominal infections and pneumonia. AstraZeneca plc, presumed to be in collaboration with Allergan plc, is also developing aztreonam-avibactam for complicated intra-abdominal and serious infections due to metallo-â-lactamase producing gram-negative pathogens.

If approved, we believe that plazomicin would compete effectively against both marketed and known pipeline competitors based on the following:

If we are unable to demonstrate these or other advantages of plazomicin over competing drugs and drug candidates, we may not be able to successfully commercialize plazomicin and our results of operations may suffer. Established pharmaceutical companies may also invest heavily to accelerate discovery and development of novel compounds or to in-license novel compounds that could make plazomicin or any other product candidates that we develop obsolete. As a result of all of these factors, our competitors may succeed in obtaining patent protection and/or regulatory approval or discovering, developing and commercializing antibiotics before we do.

Intellectual Property

The proprietary nature of, and protection for, our product candidates and our discovery programs, processes and know-how are important to our business. We have sought patent protection in the United States and certain other jurisdictions for plazomicin, LpxC inhibitors, and certain other inventions to which we have rights, where available and when appropriate. Our policy is to pursue, maintain and defend patent rights, whether developed internally or licensed from third parties, and to protect the technology, inventions and improvements that are commercially important to the development of our business. We also rely on trade secrets relating to our proprietary technology platform that may be important to the development of our business.

Our commercial success will depend in part on obtaining and maintaining patent protection and trade secret protection for our current and future product candidates and the methods used to develop and manufacture them, as well as successfully defending these patents against third-party challenges. Our ability to stop third parties from making, using, selling, offering to sell, or importing our products depends on the extent to which we have rights under valid and enforceable patents or trade secrets that cover these activities. We cannot be sure that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications filed by us in the future, nor can we be sure that any of our existing patents or any patents that may be granted to us in the future will be commercially useful in protecting our product candidates, discovery programs and processes. For this and more comprehensive risks related to our intellectual property, see "Risk Factors—Risks Related to Intellectual Property."

Plazomicin (Aminoglycoside)

The patent portfolio for plazomicin is based upon an Achaogen-owned patent family that includes patents and patent applications directed to plazomicin and structural analogs thereof, pharmaceutical compositions containing plazomicin or analogs thereof, and methods of using plazomicin or analogs thereof in the treatment of bacterial infections. As of January 31, 2016, this patent family included two U.S. patents (U.S. Patent No. 8,383,596, issued February 26, 2013, and U.S. Patent No. 8,822,424, issued September 2, 2014, which we refer to herein as the ‘596 and ‘424 patents, respectively), one pending U.S. patent application (Application Serial No. 14/334,511, filed July 17, 2014) and fourteen corresponding foreign patents and patent applications. As of January 31, 2016, we had corresponding granted patents in Australia, Canada, China, Eurasia, Israel, Japan, Korea and Taiwan. In addition, as of January 31, 2016, we had corresponding patent applications pending in Brazil, China, Europe, Hong Kong, India and Mexico. With the exception of the ‘596 patent, which the USPTO has determined is entitled to 923 days of patent term adjustment, we expect any U.S. and foreign patents in this patent family to expire in November 2028. In view of the USPTO determination that the ‘596 patent is entitled to 923 days of patent term adjustment, we expect the ‘596 patent to expire in June 2031.

It is possible, assuming that plazomicin achieves regulatory approval and depending upon the date of any such approval, that the term of the ‘596 patent may be extended up to a maximum of five additional years under the provisions of the Drug Price Competition and Patent Term Restoration Act of 1984, also referred to as the Hatch-Waxman Act. Patent term extension also may be available in certain foreign countries upon regulatory approval.

Antipseudomonal LpxC Inhibitor

Our patent portfolio for antipseudomonal LpxC inhibitor compounds is comprised of four distinct patent families. Three of these patent families are Achaogen-owned, and one is in-licensed from UW and co-owned by UW with Novartis Corp.

The first of these Achaogen-owned patent families is directed to a chemical genus that encompasses LpxC inhibitor compounds, pharmaceutical compositions containing a compound encompassed within the chemical genus and methods of using a compound encompassed within the chemical genus in the treatment of bacterial infections. As of January 31, 2016, this patent family included patent applications pending in the United States (Application Serial No. 14/223,971, filed March 24, 2014), Canada, China, Europe, Hong Kong, India, Japan, and Taiwan. In addition, as of January 31, 2016, we had corresponding granted patents in Japan and Taiwan. We expect any U.S. and foreign patents granted in this patent family to expire in June 2028.

The second of these Achaogen-owned patent families also is directed to a chemical genus that encompasses LpxC inhibitor compounds, but not ACHN-975. As of January 31, 2016, this patent family included applications pending in the United States (Application Serial No. 14/536,286, filed November 7, 2014) and Europe. We expect any U.S. and foreign patents granted in this patent family to expire in May 2033.

The third of these Achaogen-owned patent families also is directed to a chemical genus that encompasses LpxC inhibitor compounds, but not ACHN-975. As of January 31, 2016, this patent family included applications pending in the United States (Application Serial No. 14/537,048, filed November 10, 2014) and Europe. We expect any U.S. and foreign patents granted in this patent family to expire in May 2033.

As of January 31, 2016, the patent family in-licensed from UW included five issued U.S. patents, two of which (U.S. Patent Nos. 7,989,660 and 8,153,843) we believe may cover ACHN-975 and analogs thereof as a composition of matter. In addition, this patent family includes corresponding foreign patents and patent applications in Australia, Canada, China, Europe, Hong Kong, Indonesia, Israel, India, Japan, Korea, Mexico, the Philippines, Singapore, and South Africa. We believe that certain of these corresponding foreign patents and patent applications may cover ACHN-975 as a composition of matter and that certain of them do not. We expect any U.S. and foreign patents granted in this patent family to expire in January 2024.

If we are successful in developing and obtaining regulatory approval of an antipseudomonal LpxC inhibitor, the term of one U.S. patent issuing from one of our Achaogen-owned patent application families that covers such approved product may be eligible for up to five years of patent term extension under the provisions of the Hatch-Waxman Act. Patent term extension also may be available in certain foreign jurisdictions upon regulatory approval.

Trade Secrets

In addition to patents, we rely on trade secrets and know-how to develop and maintain our competitive position. We seek to protect our proprietary data and processes, in part, by confidentiality agreements and invention assignment agreements with our employees, consultants, scientific advisors, contractors, and partners. These agreements are designed to protect our proprietary information. We also seek to preserve the integrity and confidentiality of our data, trade secrets and know-how by maintaining physical security of our premises and physical and electronic security of our information technology systems. Trade secrets and know-how can be difficult to protect. Consequently, we anticipate that trade secrets and know-how will, over time, be disseminated within the industry through independent development, the publication of journal articles, and the movement of personnel skilled in the art from academic to industry scientific positions.

Government Regulation and Product Approval

Government authorities in the United States, at the federal, state and local level, and in other countries extensively regulate, among other things, the research, development, testing, manufacture, including any manufacturing changes, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, import and export of pharmaceutical products such as those we are developing. The processes for obtaining regulatory approvals in the United States and in foreign countries, along with subsequent compliance with appropriate federal, state, local and foreign statutes and regulations, require the expenditure of substantial time and financial resources.

U.S. Government Regulation

In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act ("FDCA"), and its implementing regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations requires the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval, may subject an applicant to a variety of administrative or judicial sanctions, such as the FDA’s refusal to approve

pending NDAs, withdrawal of an approval, imposition of a clinical hold, issuance of warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement or civil or criminal penalties.

The process required by the FDA before a drug may be marketed in the United States generally involves the following:

Preclinical Studies

Preclinical studies include laboratory evaluation of product chemistry, toxicity and formulation, as well as animal studies to assess potential safety and efficacy. An IND sponsor must submit the results of the preclinical tests, together with manufacturing information, analytical data and any available clinical data or literature, among other things, to the FDA as part of an IND. Some preclinical testing may continue even after the IND is submitted. An IND automatically becomes effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions related to one or more proposed clinical trials and places the clinical trial on a clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. As a result, submission of an IND may not result in the FDA allowing clinical trials to commence. In 2008, we submitted our first IND to the FDA for plazomicin. We also previously submitted an IND to the FDA for ACHN-975 in 2012; however, as described above this IND was withdrawn in May 2014 following termination of the clinical program for this compound.

Clinical Trials

Clinical trials involve the administration of the investigational new drug to human subjects under the supervision of qualified investigators in accordance with GCP requirements, which include the requirement that all research subjects provide their informed consent in writing for their participation in any clinical trial. Clinical trials are conducted under protocols detailing, among other things, the objectives of the trial, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated. A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. In addition, an IRB at each institution participating in the clinical trial must review and approve the plan for any clinical trial before it commences at that institution. Information about certain clinical trials must be submitted within specific timeframes to NIH, for public dissemination on their www.clinicaltrials.gov website.

Human clinical trials are typically conducted in three sequential phases, which may overlap or be combined:

product for approval, to establish the overall risk-benefit profile of the product, and to provide adequate information for the labeling of the product.

 

Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and more frequently if serious adverse events occur. Phase 1, Phase 2 and Phase 3 clinical trials may not be completed successfully within any specified period, or at all. Furthermore, the FDA or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients.

Marketing Approval

Assuming successful completion of the required clinical testing, the results of the preclinical and clinical studies, together with detailed information relating to the product’s chemistry, manufacture, controls and proposed labeling, among other things, are submitted to the FDA as part of an NDA requesting approval to market the product for one or more indications. In most cases, the submission of an NDA is subject to a substantial application user fee. Under the Prescription Drug User Fee Act ("PDUFA"), guidelines that are currently in effect, the FDA has a goal of ten months from the date of "filing" of a standard NDA for a new molecular entity to review and act on the submission. This review typically takes twelve months from the date the NDA is submitted to FDA because the FDA has approximately two months to make a "filing" decision.

In addition, under the Pediatric Research Equity Act of 2003, as amended and reauthorized, certain NDAs or supplements to an NDA must contain data that are adequate to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all pediatric data until after approval of the product for use in adults, or full or partial waivers from the pediatric data requirements.

The FDA also may require submission of a risk evaluation and mitigation strategy, or REMS, plan to ensure that the benefits of the drug outweigh its risks. The REMS plan could include medication guides, physician communication plans, assessment plans, and/or elements to assure safe use, such as restricted distribution methods, patient registries, or other risk minimization tools.

The FDA conducts a preliminary review of all NDAs within the first 60 days after submission, before accepting them for filing, to determine whether they are sufficiently complete to permit substantive review. The FDA may request additional information rather than accept an NDA for filing. In this event, the application must be resubmitted with the additional information. The resubmitted application is also subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive review. The FDA reviews an NDA to determine, among other things, whether the drug is safe and effective and whether the facility in which it is manufactured, processed, packaged or held meets standards designed to assure the product’s continued safety, quality and purity.

The FDA may refer an application for a novel drug to an advisory committee. An advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates and provides a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.

Before approving an NDA, the FDA typically will inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving an NDA, the FDA may inspect one or more clinical trial sites to assure compliance with GCP requirements.

The FDA generally accepts data from foreign clinical trials in support of an NDA if the trials were conducted under an IND. If a foreign clinical trial is not conducted under an IND, the FDA nevertheless may accept the data in support of an NDA if the study was conducted in accordance with GCP requirements and the FDA is able to validate the data through an on-site inspection, if deemed necessary. Although the FDA generally requests that marketing applications be supported by some data from domestic clinical studies, the FDA may accept foreign data as the sole basis for marketing approval if (1) the foreign data are applicable to the U.S. population and U.S. medical practice, (2) the studies were performed by clinical investigators with recognized competence, and (3) the data may be considered valid without the need for an on-site inspection or, if the FDA considers the inspection to be necessary, the FDA is able to validate the data through an on-site inspection or other appropriate means.

The testing and approval process for an NDA requires substantial time, effort and financial resources, and each may take several years to complete. Data obtained from preclinical and clinical testing are not always conclusive and may be susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. The FDA may not grant approval on a timely basis, or at all.

After evaluating the NDA and all related information, including the advisory committee recommendation, if any, and inspection reports regarding the manufacturing facilities and clinical trial sites, the FDA may issue an approval letter, or, in some cases, a complete response letter. A complete response letter generally contains a statement of specific conditions that must be met in order to secure final approval of the NDA and may require additional clinical or preclinical testing in order for FDA to reconsider the application. Even with submission of this additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval. If and when those conditions have been met to the FDA’s satisfaction, the FDA will typically issue an approval letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications.

Even if the FDA approves a product, it may limit the approved indications for use of the product, require that contraindications, warnings or precautions be included in the product labeling, require that post-approval studies, including Phase 4 clinical trials, be conducted to further assess a drug’s safety after approval, require testing and surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution and use restrictions or other risk management mechanisms under a REMS, which can materially affect the potential market and profitability of the product. The FDA may prevent or limit further marketing of a product based on the results of post-marketing studies or surveillance programs. After approval, some types of changes to the approved product, such as adding new indications, manufacturing changes, and additional labeling claims, are subject to further testing requirements and FDA review and approval.

Special FDA Expedited Review and Approval Programs

The FDA has various programs, including fast-track designation, accelerated approval and priority review, that are intended to expedite or simplify the process for the development and FDA review of drugs that are intended for the treatment of serious or life threatening diseases or conditions and demonstrate the potential to address unmet medical needs. The purpose of these programs is to provide important new drugs to patients earlier than under standard FDA review procedures.

To be eligible for a fast-track designation, the FDA must determine, based on the request of a sponsor, that a product is intended to treat a serious or life-threatening disease or condition and demonstrates the potential to address an unmet medical need, or that the drug qualifies as a QIDP under the recently enacted GAIN Act. The FDA will determine that a product will fill an unmet medical need if it will provide a therapy where none exists or provide a therapy that may be potentially superior to existing therapy based on efficacy or safety factors. The FDA may review sections of the NDA for a fast-track product on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the NDA, the FDA agrees to accept sections of the NDA and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the NDA.

The FDA may give a priority review designation to drugs that offer major advances in treatment, or provide a treatment where no adequate therapy exists. A priority review means that the goal for the FDA to review an application is six months, rather than the standard review of ten months under current PDUFA guidelines. Under the new PDUFA agreement, these six and ten month review periods are measured from the "filing" date rather than the receipt date for NDAs for new molecular entities, which typically adds approximately two months to the timeline for review and decision from the date of submission. Most products that are eligible for fast-track designation are also likely to be considered appropriate to receive a priority review.

In addition, products studied for their safety and effectiveness in treating serious or life-threatening illnesses and that provide meaningful therapeutic benefit over existing treatments may be eligible for accelerated approval and may be approved on the basis of adequate and well-controlled clinical trials establishing that the drug product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity or prevalence of the condition and the availability or lack of alternative treatments. As a condition of approval, the FDA may require a sponsor of a drug receiving accelerated approval to perform post-marketing studies to verify and describe the predicted effect on irreversible morbidity or mortality or other clinical endpoint, and the drug may be subject to accelerated withdrawal procedures.

Moreover, under the provisions of the FDASIA, passed in July 2012, a sponsor can request designation of a product candidate as a "breakthrough therapy." A breakthrough therapy is defined as a drug that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as

substantial treatment effects observed early in clinical development. Drugs designated as breakthrough therapies are also eligible for accelerated approval. The FDA must take certain actions, such as holding timely meetings and providing advice, intended to expedite the development and review of an application for approval of a breakthrough therapy.

Even if a product qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions for qualification or decide that the time period for FDA review or approval will not be shortened.

We received fast-track designation from the FDA for plazomicin in August 2012. More recently in December 2014, plazomicin was designated a QIDP by the FDA under the recently enacted GAIN Act.

Post-Approval Requirements

Drugs manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion and reporting of adverse experiences with the product. After approval, most changes to the approved product, such as adding new indications or other labeling claims are subject to prior FDA review and approval. There also are continuing, annual user fee requirements for any marketed products and the establishments at which such products are manufactured, as well as new application fees for supplemental applications with clinical data.

The FDA may impose a number of post-approval requirements as a condition of approval of an NDA. For example, the FDA may require post-marketing testing, including Phase 4 clinical trials, and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization.

In addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and state agencies, and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance with cGMP requirements. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP requirements and impose reporting and documentation requirements upon the sponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance.

Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market.

Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in mandatory revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distribution or other restrictions under a REMS program. Other potential consequences include, among other things:

 

The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Drugs may be promoted only for the approved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability.

In addition, the distribution of prescription pharmaceutical products is subject to the Prescription Drug Marketing Act ("PDMA"), which regulates the distribution of drugs and drug samples at the federal level, and sets minimum standards for the registration and regulation of drug distributors by the states. Both the PDMA and state laws limit the distribution of prescription pharmaceutical product samples and impose requirements to ensure accountability in distribution.

Exclusivity and Approval of Competing Products

Hatch-Waxman Exclusivity

Market and data exclusivity provisions under the FDCA can delay the submission or the approval of certain applications for competing products. The FDCA provides a five-year period of non-patent data exclusivity within the United States to the first applicant to gain approval of an NDA for a new chemical entity. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the activity of the drug substance. We believe that our product candidates are new chemical entities. During the exclusivity period, the FDA may not accept for review an abbreviated new drug application ("ANDA"), or a 505(b)(2) NDA submitted by another company that references the previously approved drug. However, an ANDA or 505(b)(2) NDA may be submitted after four years if it contains a certification of patent invalidity or non-infringement. The FDCA also provides three years of marketing exclusivity for an NDA, 505(b)(2) NDA, or supplement to an existing NDA or 505(b)(2) NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant, are deemed by the FDA to be essential to the approval of the application or supplement. Three-year exclusivity may be awarded for changes to a previously approved drug product, such as new indications, dosages, strengths or dosage forms of an existing drug. This three-year exclusivity covers only the conditions of use associated with the new clinical investigations and, as a general matter, does not prohibit the FDA from approving ANDAs or 505(b)(2) NDAs for generic versions of the original, unmodified drug product. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA; however, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness. For drug products that contain an "antibiotic" ingredient approved prior to 1997, the statute imposes certain limitations on the award of non-patent exclusivity. However, we do not believe these limitations would apply to any of our investigational antibiotics.

Qualified Infectious Disease Product Exclusivity

Under the GAIN Act provisions of FDASIA, which was signed into law in July 2012, the FDA may designate a product as a "qualified infectious disease product." In order to receive this designation, a drug must qualify as an antibacterial or antifungal drug for human use intended to treat serious or life-threatening infections, including those caused by either (1) an antibacterial or antifungal resistant pathogen, including novel or emerging infectious pathogens, or (2) a so-called "qualifying pathogen" found on a list of potentially dangerous, drug-resistant organisms to be established and maintained by the FDA under the new law. A sponsor must request such designation before submitting a marketing application. FDA granted qualified infectious disease product designation for Plazomicin for the treatment of hospital-acquired bacterial pneumonia, ventilator-associated pneumonia, complicated intra-abdominal infections, complicated urinary tract infections, and catheter-related bloodstream infections on December 14, 2014.

Plazomicin will now qualify for access to the additional incentives of the GAIN Act including extension by an additional five years of any non-patent marketing exclusivity period awarded, such as a five-year exclusivity period awarded for a new molecular entity. This extension is in addition to any pediatric exclusivity extension that may be awarded, and the extension will be awarded only to a drug first approved on or after the date of enactment.

The GAIN Act provisions prohibit the grant of an exclusivity extension where the application is a supplement to an application for which an extension is in effect or has expired, is a subsequent application for a specified change to an approved product, or is an application for a product that does not meet the definition of qualified infectious disease product based on the uses for which it is ultimately approved.

Foreign Regulation

In order to market any product outside of the United States, we would need to comply with numerous and varying regulatory requirements of other countries regarding safety and efficacy and governing, among other things, clinical trials, marketing authorization, commercial sales and distribution of our products. For example, in the EU, we must obtain authorization of a clinical trial application, in each member state in which we intend to conduct a clinical trial. Whether or not we obtain FDA approval for a product, we would need to obtain the necessary approvals by the comparable regulatory authorities of foreign countries before we can commence clinical trials or marketing of the product in those countries. The approval process varies from country to country and can involve additional product testing and additional administrative review periods. The time required to obtain approval in other countries might differ from and be longer than that required to obtain FDA approval. Regulatory approval in one country does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country may negatively impact the regulatory process in others.

To obtain a marketing authorization of a drug in the EU, we may submit marketing authorization applications, either under the so-called centralized or national authorization procedures.

Centralized Procedure

The centralized procedure provides for the grant of a single marketing authorization following a favorable opinion by the EMA that is valid in all EU member states, as well as Iceland, Liechtenstein and Norway. The centralized procedure is compulsory for medicines produced by specified biotechnological processes, products designated as orphan medicinal products, and products with a new active substance indicated for the treatment of specified diseases, such as HIV/AIDS, cancer, diabetes, neurodegenerative disorders or autoimmune diseases and other immune dysfunctions. The centralized procedure is optional for products that represent a significant therapeutic, scientific or technical innovation, or whose authorization would be in the interest of public health. Under the centralized procedure the maximum timeframe for the evaluation of an MAA by the EMA is 210 days, excluding clock stops, when additional written or oral information is to be provided by the applicant in response to questions asked by the Committee of Medicinal Products for Human Use ("the CHMP"). Accelerated assessment might be granted by the CHMP in exceptional cases, when a medicinal product is expected to be of a major public health interest, particularly from the point of view of therapeutic innovation. The timeframe for the evaluation of an MAA under the accelerated assessment procedure is of 150 days, excluding stop-clocks.

National Authorization Procedures

There are also two other possible routes to authorize medicinal products in several EU countries, which are available for investigational medicinal products that fall outside the scope of the centralized procedure:

In the EU, new products authorized for marketing (i.e., reference products) qualify for eight years of data exclusivity and an additional two years of market exclusivity upon marketing authorization. The data exclusivity period prevents generic applicants from relying on the preclinical and clinical trial data contained in the dossier of the reference product when applying for a generic marketing authorization in the EU during a period of eight years from the date on which the reference product was first authorized in the EU. The market exclusivity period prevents a successful generic applicant from commercializing its product in the EU until ten years have elapsed from the initial authorization of the reference product in the EU. The ten-year market exclusivity period can be extended to a maximum of eleven years if, during the first eight years of those ten years, the marketing authorization holder obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to their authorization, are held to bring a significant clinical benefit in comparison with existing therapies.

Regulation of In Vitro Diagnostic Assays

In the United States, the FDCA and its implementing regulations, and other federal and state statutes and regulations govern, among other things, medical device design and development, preclinical and clinical testing, premarket clearance or approval, registration and listing, manufacturing, labeling, storage, advertising and promotion, sales and distribution, export and import, and post-market surveillance. Diagnostic tests are classified as medical devices under the FDCA. Unless an exemption applies, diagnostic tests require marketing clearance or approval from the FDA prior to commercial distribution. The two primary types of FDA marketing authorization applicable to a medical device are premarket notification, also called 510(k) clearance, and approval of a premarket approval application ("PMA"). The FDA classifies all medical devices into one of three classes. Devices deemed to pose lower risk are categorized as either Class I or II, which requires the manufacturer to submit to the FDA a 510(k) pre-market notification requesting clearance of the device for commercial distribution in the United States, unless an exemption applies. Devices deemed by the FDA to pose the greatest risk, such as life sustaining, life-supporting or implantable devices, or devices deemed not substantially equivalent to a previously 510(k)-cleared device are categorized as Class III, requiring a PMA.

To obtain 510(k) clearance for a medical device, a pre-market notification must be submitted to the FDA demonstrating that the proposed device is substantially equivalent to a previously 510(k)-cleared device or a device that was in commercial distribution before May 28, 1976 for which the FDA has not yet called for the submission of a PMA, or the device must be one that has been reclassified from Class III to either Class II or I. The 510(k) clearance process usually takes from three to twelve months from the date the application is submitted and filed with the FDA, but may take significantly longer and clearance is never assured. Although many 510(k) pre-market notifications are cleared without clinical data, in some cases, the FDA requires significant clinical data to support substantial equivalence. In reviewing a pre-market notification, the FDA may request additional information, including clinical data, which may significantly prolong the review process. After a device receives 510(k) clearance,

any subsequent modification of the device that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, will require a new 510(k) clearance or could require pre-market approval. The FDA requires each manufacturer to make this determination initially, but the FDA may review any such decision and may disagree with a manufacturer’s determination. If the FDA disagrees with a manufacturer’s determination, the FDA may require the manufacturer to cease marketing and/or recall the modified device until 510(k) clearance or a PMA is obtained.

PMA applications must be supported by valid scientific evidence, which typically requires extensive data, including technical, preclinical, clinical and manufacturing data, to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device. For diagnostic tests, a PMA application typically includes data regarding analytical and clinical validation studies. As part of its review of the PMA, the FDA will conduct a pre-approval inspection of the manufacturing facility or facilities to ensure compliance with the Quality System Regulation ("QSR"), which requires manufacturers to follow design, testing, control, documentation and other quality assurance procedures. FDA review of an initial PMA application is required by statute to take between six to ten months, although the process typically takes longer, and may require several years to complete. If the FDA evaluations of both the PMA application and the manufacturing facilities are favorable, the FDA will either issue an approval letter or an approvable letter, which usually contains a number of conditions that must be met in order to secure the final approval of the PMA. If the FDA’s evaluation of the PMA or manufacturing facilities is not favorable, the FDA will deny approval of the PMA or issue a not approvable letter. A not approvable letter will outline the deficiencies in the application and, where practical, will identify what is necessary to make the PMA approvable. The FDA may also determine that additional clinical trials are necessary, in which case the PMA approval may be delayed for several months or years while the trials are conducted and then the data submitted in an amendment to the PMA. Once granted, PMA approval may be withdrawn by the FDA if compliance with post-approval requirements, conditions of approval or other regulatory standards is not maintained or problems are identified following initial marketing.

We and our partner, ARK, are developing a diagnostic assay for plazomicin and will work together to generate the data required for submission of either a 510(k) submission or a PMA application. We will remain in close contact with the Center for Devices and Radiological Health ("CDRH"), at the FDA to ensure that any changes in requirements are incorporated into the development plans. We anticipate that meetings with the FDA with regard to plazomicin as well as the diagnostic assay will include representatives from the Center for Drug Evaluation and Research, and CDRH to ensure that the drug and device submissions are coordinated to enable the FDA to conduct a parallel review of both submissions. The assay may be classified by the FDA as a companion diagnostic for plazomicin in association with the cUTI or CRE populations. On August 6, 2014, the FDA issued a final guidance document addressing the development and clearance or approval process for " In vitro Companion Diagnostic Devices." According to the guidance, for novel therapeutic products such as plazomicin, the companion diagnostic device should be developed and approved or cleared contemporaneously with the therapeutic. We believe our programs for the development of our companion diagnostic are consistent with the guidance.

In the European Economic Area ("EEA"), in vitro medical devices are required to conform with the essential requirements of the EU Directive on in vitro diagnostic medical devices (Directive No 98/79/EC, as amended). To demonstrate compliance with the essential requirements, the manufacturer must undergo a conformity assessment procedure. The conformity assessment varies according to the type of medical device and its classification. For low-risk devices, the conformity assessment can be carried out internally, but for higher risk devices it requires the intervention of an accredited EEA Notified Body. If successful, the conformity assessment concludes with the drawing up by the manufacturer of an EC Declaration of Conformity entitling the manufacturer to affix the CE mark to its products and to sell them throughout the EEA. The data generated for the U.S. registration will be sufficient to satisfy the regulatory requirements for the EU and other countries.

Fraud and Abuse and Data Privacy and Security Laws and Regulations.

In addition to FDA restrictions on marketing of pharmaceutical products, federal and state fraud and abuse laws restrict business practices in the biopharmaceutical industry. These laws include anti-kickback and false claims laws and regulations as well as data privacy and security laws and regulations.

The federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce or in return for purchasing, leasing, ordering, or arranging for or recommending the purchase, lease, or order of any item or service reimbursable under Medicare, Medicaid or other federal healthcare programs. The term "remuneration" has been broadly interpreted to include anything of value. The Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers, and formulary managers on the other. Although there are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution, the exemptions and safe harbors are drawn narrowly. Practices that involve remuneration that may be alleged to be intended to induce prescribing, purchases, or recommendations may be subject to scrutiny if they do not meet the requirements of a statutory or regulatory exception or safe harbor. Several courts have interpreted the statute’s intent requirement to mean that if any

one purpose of an arrangement involving remuneration is to induce referrals of federal healthcare covered business, the statute has been violated.

The federal False Claims Act prohibits any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government or knowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government. A claim includes "any request or demand" for money or property presented to the U.S. government. Several pharmaceutical and other healthcare companies have been prosecuted under these laws for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. Other companies have been prosecuted for causing false claims to be submitted because of the companies’ marketing of products for unapproved, and thus non-covered, uses. In addition, many states have similar fraud and abuse statutes or regulations that apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor.

The federal Health Insurance Portability and Accountability Act of 1996 ("HIPAA"), also created new federal criminal statutes that prohibit knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private third-party payors and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively, the ("PPACA"), signed into law on March 2010, broadened the reach of both the Anti-Kickback Statute and the criminal healthcare fraud statute by amending the intent requirement such that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. In addition, PPACA provides that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act or the civil monetary penalties statute, which imposes penalties against any person who is determined to have presented or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent.

In addition, there has been a recent trend of increased federal and state regulation of payments made to physicians and other healthcare providers. PPACA created new federal requirements for reporting, by applicable manufacturers of covered drugs, payments and other transfers of value to physicians and teaching hospitals. Applicable manufacturers are also required to report annually to the government certain ownership and investment interests held by physicians and their immediate family members, and payments or other transfers of value to such physician owners and their immediate family members. In addition, certain states require implementation of commercial compliance programs and compliance with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, impose restrictions on marketing practices, and/or tracking and reporting of gifts, compensation and other remuneration or items of value provided to physicians and other healthcare professionals and entities.

We may also be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business. HIPAA, as amended by the Health Information Technology and Clinical Health Act ("HITECH"), and its implementing regulations, imposes specified requirements relating to the privacy, security and transmission of individually identifiable health information. Among other things, HITECH makes HIPAA’s privacy and security standards directly applicable to "business associates," defined as independent contractors or agents of covered entities that receive or obtain protected health information in connection with providing a service on behalf of a covered entity. HITECH also increased the civil and criminal penalties that may be imposed against covered entities, business associates and possibly other persons, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney’s fees and costs associated with pursuing federal civil actions. In addition, state laws govern the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same requirements, thus complicating compliance efforts.

To the extent that any of our product candidates, once approved, are sold in a foreign country, we may be subject to similar foreign laws and regulations, which may include, for instance, applicable post-marketing requirements, including safety surveillance, anti-fraud and abuse laws, and implementation of corporate compliance programs and reporting of payments or other transfers of value to healthcare professionals.

Coverage and Reimbursement

Significant uncertainty exists as to the coverage and reimbursement status of any drug products or diagnostic assay for which we obtain regulatory approval. In the United States and markets in other countries, sales of any products for which we receive regulatory approval for commercial sale will depend, in part, on the availability of coverage and reimbursement from third-party payors. Third-party payors include government authorities, managed care providers, private health insurers and other organizations. The process for determining whether a payor will provide coverage for a drug product may be separate from the process for setting the reimbursement rate that the payor will pay for the drug product. Third-party payors may limit coverage to

specific drug products on an approved list, or formulary, which might not include all of the FDA-approved drugs for a particular indication. A decision by a third-party payor not to cover our product candidates could reduce physician utilization of our products once approved and have a material adverse effect on our sales, results of operations and financial condition. Moreover, a payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development.

In addition, the U.S. government, state legislatures and foreign governments have continued implementing cost-containment programs, including price controls, restrictions on coverage and reimbursement and requirements for substitution of generic products. By way of example, in the United States, the PPACA contains provisions that may reduce the profitability of drug products, including, for example, increased rebates for drugs sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, addressed new methodologies by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected, and for drugs that are line extension products, mandatory discounts for certain Medicare Part D beneficiaries, and annual fees based on pharmaceutical companies’ share of sales to federal healthcare programs. We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our products once approved or additional pricing pressures.

Manufacturing

We do not own or operate manufacturing facilities for the production of any of our product candidates, nor do we have plans to develop our own manufacturing operations in the foreseeable future. We currently rely on a limited number of third-party contract manufacturers for all of our required raw materials, drug substance, and finished drug product for our preclinical research and clinical trials. We expect that our in vitro assay will be manufactured by ARK or another third-party supplier. For plazomicin, we source raw materials from various commercial suppliers, primarily located in the People’s Republic of China, including sisomicin, the aminoglycoside precursor for plazomicin. Our drug substance is currently manufactured by Hovione Inter Limited and the finished drug product by a U.S. based contract manufacturer. We do not have long-term agreements with these third parties. We do not have any current contractual relationships for the manufacture of commercial supplies of any of our product candidates after they are approved. We currently employ internal resources to manage our manufacturing. If any of our products are approved by any regulatory agency, we intend to enter into agreements with third-party contract manufacturers for the commercial production of those products.

Plazomicin is an organic compound of low molecular weight, commonly referred to as a small molecule. Plazomicin is also considered a semi-synthetic molecule since it is derived from a primary starting material that is a natural product, sisomicin, produced by microbial fermentation. Sisomicin is combined with other starting materials over a series of chemical steps to produce plazomicin. We believe that our use of a synthetic process will enable us to have a cost of manufacturing for plazomicin that is similar to other small molecule antibiotics.

Research and Development Expenses

We devote a substantial portion of our resources to developing new product candidates. Please see "Management’s Discussion and Analysis of Financial Condition and Results of Operations-Financial Overview and Results of Operations-Research and Development Expenses" for the amounts spent on company-sponsored research and development for the past three fiscal years.

Customer Concentration and Geographic Information

For the years ended December 31, 2015, 2014 and 2013, all of the Company’s revenue has been generated solely from funding pursuant to U.S. government contracts, and accordingly all contracts receivable relate to funding from U.S. government. See Note 2 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information.

All of our revenues for the years ended December 31, 2015, 2014, and 2013 were earned in the United States. All of our long-lived assets are located in the United States.

Employees

As of December 31, 2015, we had 62 full-time employees, 46 of whom were primarily engaged in research and development activities and 16 of whom were primarily engaged in business development, finance, legal, human resources, facilities, information technology administration and general management. None of our employees is represented by a labor union and we consider our employee relations to be good.

Additional Information

We view our operations and measure our business as one reportable segment operating primarily in the United States. See Note 2 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information. Additional information required by this item is incorporated herein by reference to Part II, Item 6, "Selected Financial Data."

We were originally incorporated in Delaware in June 2002 and commenced operations in 2004. We completed our initial public offering of our common stock in March 2014. Our mailing address and executive offices are located at 7000 Shoreline Court, Suite 371, South San Francisco, CA 94080 and our telephone number at that address is (650) 800-3636. We maintain an Internet website at the following address: www.achaogen.com. The information on our website is not incorporated by reference in this annual report on Form 10-K or in any other filings we make with the SEC.

We make available on or through our website certain reports and amendments to those reports that we file with or furnish to the SEC in accordance with the Exchange Act. These include our annual reports on Form 10-K, our quarterly reports on Form 10-Q, and our current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. We make this information available on or through our website free of charge as soon as reasonably practicable after we electronically file the information with, or furnish it to, the SEC.