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Summary

  • Maxim's analyst, Jason Kolbert, has a history of assigning crazy price targets to biotech stocks, and has been wrong most of the time.
  • Yesterday, Gilead came out with news of positive phase 3 trials for its Hepatitis C (HCV) Genotype I drug, that suggests ACHN's protease inhibitor Sovaprevir could be worthless now.
  • Achillion hasn't done any studies this past year for its pre-clinical stage nucleotide, whereas Idenix has been engaging in studies on its phase 2 nuc.
  • Achillion's insiders are selling, and Idenix's biggest shareholder, Baupost, owns no shares of Achillion.

Achillion (NASDAQ:ACHN) rose 20% yesterday off of an analyst upgrade from Maxim, increasing its price target from $6 to $22 per share. This news took the spotlight from some bad news that happened for ACHN. Gilead (NASDAQ:GILD) reported favorable phase 3 trial results to combat Genotype I HCV. This makes Achillion's Sovaprevir potentially worthless, since its purpose is also to treat Genotype I but it's a protease inhibitor and Gilead's nucleotides are superior. I went into more detail on the protease inhibitors vs. nucleotides debate in my previous Achillion bearish article. Although Maxim's price target strays far from reality in my opinion, they issued the report before the Gilead results came out, so that news isn't reflected in their report.

Maxim's Outrageous Price Target

Maxim's price target of $22. As you know, sell side firms have no accountability if they're wrong, they aren't invested in the stock.

A $22 PT puts Achillion's value at $2.13B. How can they justify such a high price target? How can Maxim be so confident with Achillion's limited research?

From Investor's Business Daily:

After having dinner with company executives, analyst Jason Kolbert hiked his target to 22 from 6, while maintaining his buy rating.

The dinner must have been really good for Mr. Kolbert to give such a high price target. But upon further research, Mr. Kolbert has given outrageous biotech price targets to other stocks as well. Looking at them, his track record is not good. I did a random price target search on Mr. Kolbert from Google.

On 4/24/14, he initiated a price target on KOOL for $7. The stock was trading for $2.06 on that day, now it's trading at $1.48 for a 28% decline.

On 12/19/13, he raised his price target on ATHX from $6 to $10. The stock was trading for $2.12 on that day, now it's trading at $1.66 for a 22% decline.

On 2/24/14, he raised his price target on TKMR from $17 to $31. It was trading for $21.63 on that day, now it's trading at $12.97 for a 40% decline.

Out of respect for Mr. Kolbert, I won't catalogue the rest of his calls. But if you are interested in the rest of his biotech predictions, do a google search for his price targets on DNDN, ASTM, PSTI, MSB.AX, CYTX, and ISR to see what his track record is.

Achillion Has Been Inactive On Its Nucleotide Research For The Past Year

If Achillion's management is so confident with their nucleotide, ACH 3422, then why haven't they been working diligently on it for the past year like Idenix has been working on its nucs? Achillion certainly has the funds for it. They could've started Phase I clinical trials last year. Is it because they are trying to delay the results from lack of confidence?

From clinicaltrials.gov:

Gilead has done 70 studies in total on HCV. It is currently recruiting for 10 studies.

Idenix (NASDAQ:IDIX) has done 20 studies on HCV and is recruiting for three.

Achillion has done four studies on HCV, and isn't currently recruiting for any of them.

So this small biotech company with a history of failure and zero revenues, that has been doing almost no clinical work for the past year, is going to suddenly come out with a blockbuster drug to compete with Gilead and Merck? I find this unlikely.

What ACHN Stock Gained From Sovaprevir's FDA Release Should Now Be Lost

When the IDIX buyout was announced in the premarket of June 9, ACHN went up in sympathy to this buyout, and closed the day at $4.25, for a whopping 47.5% gain from its previous day's close of $2.88.

Then, the next day, Achillion reported that the FDA had released its clinical hold over its drug Sovaprevir, that it had previously halted further studies on safety concerns. As Adam Feuerstein from thestreet.com pointed out, this was a well timed announcement in order to fan the flames of hype, and certainly was not a coincidence.

Investors were very excited on this news, as Sovaprevir is a candidate that could possibly treat genotype I HCV patients without the use of interferon. Interferon is a combo drug that has historically been used to treat HCV but causes extremely bad side effects that some patients claim is even worse than HCV itself. ACHN closed June 10th at $7.79 on this news, for a whopping 83.3% gain over the previous day's close.

Achillion investors had reason to be excited about Sovaprevir, because it had potential to be able to challenge Gilead to treat Genotype I HCV patients. Right now, Gilead's treatment uses the assistance of Interferon to treat Genotype I HCV patients.

In fact a Seeking Alpha reader commented on this fact in my previous Achillion article. Peanut Gallery asked:

Perhaps it has been missed that Gilead's current treatment for genotype I involves interferon in combination and that per Achn, with Sovaprevir, "100% of treatment-naive GT1b patients achieved SVR12 in the Phase 2 -007 Study, evaluating the interferon-free combination of sovaprevir and the second-generation NS5A inhibitor, ACH-3102, with ribavirin (RBV) for 12 weeks."

However, Gilead yesterday reported great results for its trials using its "NS5A inhibitor ledipasvir (LDV) 90 mg and the nucleotide analog polymerase inhibitor sofosbuvir (SOF) 400 mg" to treat Genotype I patients. From the report:

"The cure rates observed with LDV/SOF in this study are impressive because they were achieved without the need for interferon or ribavirin, both of which involve more complex dosing requirements and may be associated with significant side effects," said Norbert Bischofberger, PhD, Gilead's Executive Vice President of Research and Development and Chief Scientific Officer.

So not only does Gilead's treatment not need interferon to treat GT1 patients, but it also doesn't need ribavirin, which Sovaprevir uses in combo. This news is a devastating blow to Sovaprevir. Why should patients use Sovaprevir with ribavirin, when they can avoid that with Gilead's treatment? This news would have made ACHN stock drift below $6 per share by the end of the day. But the Maxim upgrade stole all the attention from this bad news for ACHN. Once investors realize the impact of this Gilead news, then ACHN should give back its gains from the June 10th news release about the FDA releasing its clinical hold on Sovaprevir. That will put its share price back in the $4-$5 range.

All That Achillion Has Left Are Its Pre-clinical Nucleotides

Now that there is strong evidence that Sovaprevir could be worthless, Achillion might as well save its investors' money and cease trials with it. All that's left is its nucleotides. However, they have only so far been tested for safety on animals. This means that ACHN investors have their money invested in a $700M market cap company, that has only done preclinical trials so far, in the hopes to be the third HCV nucleotide in the market many years down the road. The fact that ACHN's nucleotide is still in preclinical stages should give investors a lot of pause, especially in terms of safety.

Value investor12 made some very insightful comments on my last article. In regards to the failed safety tests of other nucleotides he commented:

Mercitabine failed because of potency, BMS 986094 failed because of safety, psi 938 failed because of safety reasons. In theory you are right but in reality there are more failures than successes despite favorable preclinical data. I don't think it is easy to develop and nuc that is not already on patent that is potent and effective.

I remember BMS 986094 well. Bristol-Meyers Squibb (NYSE:BMY) had acquired Inhibitex for $2.5B in 2012. Inhibitex's nucleotide INX-189 had shown potent antiviral activity in its phase II trials against HCV. However, the nuc ended up being too potent and toxic, and BMY had to scratch the drug for safety reasons. The same thing can easily happen to ACH 3422, and it won't be ready for phase II trials for a couple years. On top of that, there's efficacy issues to worry about as well.

Apparently, from the preclinical trials, Achillion's nucleotide is potent. Here are the results from its website:

In preclinical studies, ACH-3422 has displayed high anti-HCV potency against all HCV genotypes [GT1b: 51nM, GT1a: 74nM, GT2a: 107nM, GT3a: 14nM, GT4a: 25nM].

But with potency comes safety issues. According to safety, ACHN has on its site:

The non-clinical safety profile of ACH-3422 to date supports clinical development.

ACH-3422 has a long way to go to test safety and potency, as well on human subjects instead of animals. There won't be any big pharma companies that will be willing to pay ACHN's current market cap without more studies done.

Baupost Group Doesn't Own Achillion

Seth Klarman's Baupost Group was a 35% holder of Idenix before the buyout. However, his fund doesn't own any Achillion shares. Many insiders have been selling ACHN recently on the hype. Almost 1 million shares have been sold in the past week. I expect to see more insider sales this week.

Biotech is a complicated sector. It helps one's analysis to see what those "in the know" are doing. And I'm not talking about sellside analysts, who can recommend a company and have outrageous price targets without facing any consequences if they're wrong. Sell side firms usually make their money from investment banking profits either way for doing so.

Source: Maxim's $22 Price Target On Achillion Is Far From Realistic