Young And Restless Portfolio: Dumping A Problem But Still Looking Great

Just after I did a portfolio update on Friday (published 9/29), Achillion (NASDAQ:ACHN) announced a semi-disaster: The FDA has refused to remove a "hold" on clinical trials of sovaprevir, Achillion's NS3 protease inhibitor in the treatment of hepatitis C.

Here is what Milind Deshpande, President and Chief Executive Officer of Achillion stated in the company press release:

"While we are disappointed that we were not able to resolve the clinical hold at this time despite having addressed all the issues, we believe the breadth of our portfolio allows us to quickly advance other all oral combination regimens for the treatment of HCV,"...... "With our Phase 2 NS5A inhibitor, ACH-3102, we are in a position to rapidly initiate combination studies with ACH-2684, our protease inhibitor, with results expected in 2014. Further, we continue to advance our uridine-analog nucleotide, ACH-3422, with which we anticipate initiating clinical trials in the first half of 2014."

As far as I am concerned, this puts Achillion well behind the other companies involved in this market, and Gilead (NASDAQ:GILD) is even more firmly in the lead right now. The company will try to stop the bleeding with a conference call Monday morning, at 8:30 a.m. EST, regarding this issue, and the rest of the drug pipeline. Here is the information for those interested:

The Company will host a conference call and simultaneous webcast on Monday, September 30, 2013 at 8:30 a.m. Eastern time. To participate in the conference call, please dial (877) 266-0482.

As most bio-tech investors know, the FDA can literally crush a stock if they come out with less than favorable rulings. In this case, Achillion gave all the details that the FDA required to have the hold lifted, but the agency refused to budge. As a result, the after hours trading, after our update, hit shares of ACHN worse than I would have thought.

A drop of 44% is not something that we should ignore, nor does it mean that the stock is now "cheap". While I still believe that ACHN is in the hepatitis C "game", the FDA has definitely put a hefty dent into any progress in the near to intermediate term. It is time for us to sell our position in ACHN and take our lumps.

Remember What This Portfolio Is All About

The "Young and Restless" portfolio consists of Galena Biopharma (NASDAQ:GALE), Amazon (NASDAQ:AMZN), Facebook (NASDAQ:FB), Yahoo (NASDAQ:YHOO), Achillion , Ambarella (NASDAQ:AMBA), and Zynga (ZNGA). This fast moving portfolio was very quick to take profits in Netflix (NASDAQ:NFLX) and Google (NASDAQ:GOOG) if you remember. Of course, I was told I was crazy at the time, and they would continue to move higher. That was not the point. Those two stocks reached the law of diminishing returns even if they might have gone up another few percentage points. We tripled our money in Netflix, and doubled our money in Google.

Bulls make money, bears make money, pigs get slaughtered. Taking profits and minimizing losses is what this portfolio is all about. While it will not be a pretty sight to lose half of our investment in ACHN, the overall portfolio has increased by more than 75% since we launched it.

Here is the last update before the ACHN collapse:

Stock Orig.Price Price Now Orig. Invst Value Now %+/-
AMZN 230 315 10,000 14,000 40%
GALE 2 2.15 10,000 10,700 7%
ZNGA 3 3.66 10,000 12,200 22%
FB 24 51 20,000 42,000 110%
ACHN 8 7 20,000 17,600 -12%
YHOO 22 34 20,000 30,100 51%
AMBA 17 19 10,000 11,000 11%
Portfolio Value xxxx xxxx xxxx 137,600
Cash xxxx xxxx xxxx 3,700
Total xxxx xxxx xxxx 141,300
Click to enlarge

Here is what the portfolio will look like after we dump ACHN:

Stock Orig.Price Price Now Orig. Invst Value Now %+/-
AMZN 230 315 10,000 14,000 40%
GALE 2 2.15 10,000 10,700 7%
ZNGA 3 3.66 10,000 12,200 22%
FB 24 51 20,000 42,000 110%
YHOO 22 34 20,000 30,100 51%
AMBA 17 19 10,000 11,000 11%
Portfolio Value xxxx xxxx xxxx 120,000
Cash xxxx xxxx xxxx 13,700
Total xxxx xxxx xxxx 133,700
Click to enlarge

By selling at a 50% drop in price, first thing Monday morning, the value of this portfolio will drop by about $8,600. Keep in mind that it will still be up by roughly 60% from the initial investment of $80,000. (Maybe we will get lucky and sell at a bit higher price, but that will be for the next update!) Our remaining cash from this sale will be put into our reserves, and we will be looking to deploy the money into another $10,000 purchase of a strong growth potential stock. My very first inclination is to buy another $10,000 of GALE, but I think we need to extend this portfolio with a different stock.

The Bottom Line

Even if the conference call stems the tide, I am selling the stock. Why play with fire when it is clearly burning? It could even drop another 50%! I have no crystal ball.

ACHN might turn out right and investors will hopefully make money. For our purposes in this portfolio, I will take the hit, not look back, and maybe invest in the company again after they get back on track. The diversity of this portfolio has allowed us to turn $80k into $133k in about 11 months, even with taking this loss. That ain't hay folks, that is serious money.

Disclosure: I am long AMBA, ACHN, FB, GALE, YHOO, ZNGA. 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.