Achillion: Poised For Growth And Now Is The Time To Buy

Back in late October I wrote an article (read it here) about Achillion Pharmaceuticals (NASDAQ:ACHN) in which I suggested that it could be a solid speculative biotech stock to purchase. I was a bit too soon with that call since the stock has gone from $9.54/share down to about $8.00/share as of today.

The reason I offered the suggestion at that time was because there was the annual AASLD conference being held in mid November, at which time ACHN was giving a major presentation. I noted;

"In just a few weeks the AASLD meetings (review the meeting information here) will commence, and Achillion will not only be a major presence, they more than likely will be a major focus, since ACHN is one of the last companies standing with a drug combination that appears to be working.

An anticipated exhibit as well as a major presentation of the company's success during this meeting could have the potential suitors begin a bidding process for a potential buyout of the entire company."

My reasoning was quite simple, I felt that when ACHN presented their most recent results, the time would be right for 2 events to occur; the share price would soar, and/or the company would have a number of suitors bidding on taking them over. I missed that call.

The problem was that Achillion chose not to release interim data from the phase II trials of ACH-1625. That sent the stock tumbling down to the mid $7.00 range and was a disappointment to speculators at that time. The one thing that investors should understand is that ACHN still has the drug in the works, and it just might be ready to fulfill the anticipated success with another 3 drugs as well as 1625.

The Drug(s)

The drug is for the treatment of Hepatitis C. Many other companies had been rushing to get a large chunk of this $20 billion target market potential. The other companies that are in the game; Bristol-Myers (NYSE:BMY), Medivir (OTC:MVRBF), Boehringer Ingelheim, Roche (OTCQX:RHHBY), Merck (NYSE:MRK), Gilead (NASDAQ:GILD), Pfizer (NYSE:PFE) , Vertex (NASDAQ:VRTX), Abbott (NYSE:ABT) and Anadys.

From the ACHN web site:

"The hepatitis C virus is the most common cause of viral hepatitis, which is an inflammation of the liver. It is currently estimated that more than 170 million people are infected with HCV worldwide including nearly 4 million people in the United States, more than twice as widespread as HIV. Three-fourths of the HCV patient population is undiagnosed; it is a silent epidemic and a major global health threat. Chronic hepatitis, if left untreated, can lead to permanent liver damage that can result in the development of liver cancer, liver failure or death. Few therapeutic options currently exist for the treatment of HCV infection. The current standard of care is limited by its specificity for certain types of HCV, significant side-effect profile, and injectable route of administration."

Each companies drugs can be reviewed in this complete report from Medscape.

What is notable is that Achillion has 4 drugs in the mix; ACH-2684, 2928, 3102 and 1625. Each of which are showing strong promise at various phase I and II trials, and can either work independently or in combination in an oral fashion, not injections.

From the report;

"ACH-1625 (Achillion Pharmaceuticals, New Haven, CT, USA) is a potent inhibitor of HCV NS3 protease that is a first-generation, second-wave PI. It is rapidly and selectively distributed to the liver.[53] In phase Ib clinical studies, HCV genotype 1-infected patients receiving doses ranging from 200 to 600 mg BID, and 400 to 600 mg QD for up to 5 days showed mean maximal reductions in viral load ranging from 3.1 1og10 to 4.25 1og10 (Fig. 5).[54] Reductions in viral load were substantial at 48 h. Furthermore, all patients had viral loads that remained suppressed for at least 7 days after dosing was completed, maintaining a mean reduction of more than 1.0 1og10 from baseline through day 12, the last day of viral load measurement in the study. In the 400- and 600-mg fasting and the 600-mg-fed groups, the maximum decreases in HCV RNA were 3.67, 3.40 and 3.81 log10, respectively. With QD dosing, modelling showed that the log drop does not fall below 3 and that there were no major differences between the QD and previously described BID dosing regimens. Despite a high proportion of resistant variants identified in participants and drug plasma level significantly below the EC50 against those strains, viral suppression continued through the follow-up at day 12.[55] This observation may be the result of the drug's hepatoselectivity."

"ACH-2684 (Achillion Pharmaceuticals) also appears to be a second-generation PI. It shows highly potent pan-genotypic inhibition of HCV replication in vitro (genotypes 1-6). Preliminary evidence has shown that ACH-2684 exhibits IC50 values against NS3 proteases from genotypes 1-6 ranging from 0.04 to 0.7 nm. ACH-2684 retained its potency when tested against known resistant mutants including NS3 proteases carrying mutations at R155, A156 and D168 (IC50 0.2-2.2 nm). Furthermore, ACH-2684 does not inhibit CYP enzymes or activate CYP transcription; it is metabolically stable in human liver microsomes and shows high liver distribution in preclinical animal species.[63] ACH-2684 is currently undergoing phase I clinical studies."

"ACH-2928 (Achillion Pharmaceuticals) has very high potency that is in the picomolar range. When studied against a panel of chimeric replicons carrying NS5A from genotype-1a and genotype-1b HCV-infected patients, average EC50 values were 13 and 1.9 pm for genotypes 1a and 1b, respectively. EC50 values for genotypes 2a, 4a and 5a replicons were <14 pm.[65] Potency against genotypes 6a and 3a chimeric replicons was 48 and 103 pm, respectively. ACH-2928 exhibits a good safety and pharmacokinetic profile that strongly supports once-daily dosing and is highly effective in combination with NS3 PIs, NS5B polymerase inhibitors, PegIFN and RBV. Phase I trials have now begun with this compound."

There are no updates on ACH-3102 as of yet.

The most highly anticipated drug is obviously 1625 (Sovaprevir), which could be coming out of phase II trials and into the critical phase III. The other drugs are in the mix and create an incredible pipeline for this tiny company.

"Sovaprevir is a Phase 2 pan-genotypic HCV protease inhibitor designed and synthesized based on crystal structures of enzyme/inhibitor complex. Sovaprevir is an open chain, non-covalent, reversible inhibitor of NS3 protease. In clinical and preclinical studies, sovaprevir demonstrated high potency, unique pharmacokinetic properties and an excellent safety profile at high drug exposures. With low single-digit nanomolar potency specific to HCV, sovaprevir is equipotent against HCV genotypes 1a and 1b at IC50 of approximately 1nM. Sovaprevir achieved sustained viral response rates of approximately 80% in combination with pegylated-interferon and ribavirin for the treatment of HCV genotype 1, and will be evaluated in all-oral, interferon-free regimens, Fast Track status was granted to sovaprevir in 2012 for the treatment of chronic HCV."
(Information taken from the Achillion web site)

Not to be understated, but ACHN offers a promising combination of oral drugs that could, for all intents and purposes, cure hepatitis C.

This does not mean that this is a slam dunk by any means. Investors have seen too many promising drugs in the hands of the FDA be turned down completely. That being said, many of the smaller drug companies had already been bought out by the larger companies, just for the potential of the drug being approved anyway.

Here we have a public company with a wonderful balance sheet as well as 4 promising drugs just now coming to fruition. ACHN is poised for remarkable growth either on its own, or by virtue of a significant acquisition price in my opinion.

The Basic Fundamentals

Perhaps the most compelling reason to speculate on ACHN stock now, before they finally announce interim data, is the company fundamentals.

  • An enterprise value of only $560 million.
  • $81 million in cash.
  • Only $750k in debt (virtually debt free).
  • 73% of all outstanding shares are held by institutions (of which 40% are held by insiders).
  • 12 million shares of the 61 million share float, is short (short squeeze anyone?).

The share price has dropped by about 30% since early October and offers a very compelling entry point as well.

Add to these facts the recent upgrades by various analysts such as Bank of America, and Piper Jaffray, as well as Wells Fargo, Deutsche Bank and Cowen. Each recommendations suggest that ACHN could be a prime takeover candidate as soon as the first few weeks in January of 2013.

As BAC noted:

"In early January, ACHN plans to disclose interim data from an ongoing pilot study evaluating its second generation HCV NS5a inhibitor ACH-3102 in combination with ribavirin. While results will be on a small patient subset and small patient numbers, partial 4 and 12 week results will provide some preliminary information designed to address the key question of whether this drug candidate is differentiated from first generation NS5a inhibitors, particularly on resistance barrier. If positive, meaning there is no viral breakthrough and safety data are clean, these data would provide an important step to increase the strategic value of ACHN's HCV drug portfolio. We note there remains a significant unmet need in pharma/biotech pipelines for a high barrier to resistance NS5a inhibitor. If there is a safety finding of concern, we see substantial downside to ACHN shares. We take some comfort this risk is partially mitigated as the company is planning to expand the ongoing trial and any obvious safety signal would have caused the trial to shut down; there is limited patient exposure however, so it is too early to view this risk as eliminated.," Bank of America's analyst commented."

This report comes directly from the mouth of the CEO of Achillion, Michael Kishbauch:

"We now plan to submit to the FDA a Phase 2 protocol that will evaluate an all-oral, interferon-free regimen containing sovaprevir and ACH-3102 for 12 weeks and, pending discussions with the regulatory agency, we intend to initiate this combination study with the goal of reporting rapid virologic response, or RVR, in the first half of 2013," Michael Kishbauch, president and CEO of Achillion, stated."

From this article;

"The company also revealed Phase I data from a short proof-of-concept study of its protease inhibitor, ACH-2684. It showed antiviral activity in patients both with and without previous exposure to treatments for their hep C.

Achillion has been one of the most discussed potential buyout targets for companies interested in beefing up their portfolios of oral hep C drugs, yet analysts have speculated that potential buyers might be waiting for further clinical data on its top drug candidates."

My Opinion

This stock could produce impressive returns in 2013 and while I did not purchase the stock back in October, I will be taking a risk position on the next day of trading.

I believe that the drugs have enormous potential and the company is a prime takeover candidate, sooner than later. The analysts have varying price targets of $13.00 to $17.00 per share, but who knows how much a bidding war can fetch after ACHN announces some of the interim results in the next few weeks.

Obviously I am not suggesting that anyone should buy or sell this stock based on my opinions stated here. This is a speculative risk investment and should be viewed along with each investors tolerance for risk. I am not an expert in this field and all information has been gleaned from public documents in which I have formulated my opinion.

Disclosure: I have no positions in any stocks mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I will be buying ACHN within 24 hours of this article being published.