Which Hedge Fund is Animating Achillion?

QVT Financial, a hedge fund managed by Daniel Gold, specializes in healthcare-related stocks, holding about half of its equity portfolio in biotech and pharmaceutical stocks. According to its 13F filing, as of the end of June 2012, the fund’s top holdings included VIVUS, Inc. (NASDAQ:VVUS), Medivation, Inc. (NASDAQ:MDVN), and TPC Group Inc (NASDAQ:TPCG), all of which have had break-out years, returning 80 percent of more (view Gold’s portfolio here).

Most recently, QVT struck a deal with Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN), purchasing 6.38 million shares valued at $41 million in total. The company is yet to start generating revenue from its flagship products, but late-phase drugs are on tap in the company’s pipeline. The direct offering will help improve the balance sheet for the company as it progresses through a number of late-stage drug trials.

Achillion Pharmaceuticals, Inc.

Hepatitis C has been a major source of interest for the company and is an area which has been surrounded by a number of mergers and acquisitions. Roche Holding Ltd. (PINK:RHHBY) acquired Anadys Pharmaceuticals Inc. for $230 million, Gilead Sciences, Inc. (NASDAQ:GILD) acquired Pharmasset Inc. $11 billion, and Bristol Myers Squibb Co. (NYSE:BMY) purchased Inhibitex Inc. for $2.5 billion. Achillion is the smallest significant company with an orally-administered hepatitis C therapy in the works.

Many consider Gilead Sciences, Inc. to have a substantial leg up, however, with its Pharmasset acquisition. The clinical trial results for GS-7977, an orally administered hepatitis C medication, have been very positive. This drug is thought to be a sign that Gilead Sciences will develop an interferon-free hepatitis C therapy regimen before long. (Many immunological drugs require interferon administration—a chemical that usually has diffuse and often deleterious effects on patients.) GS-7977 is already known to be effective with a 12-week interferon administration.

However, Achillion also has much to offer here. QVT likely bought the company primarily because it is the most promising orphan yet to be purchased by large-cap pharma. As a background to these drug developments, hepatitis C works by producing a core protein and three other proteins, NS3, NS4, and NS5. The strategy from Achillion is to neutralize the actual viral protein products, so the company has developed proteases—drugs that destroy these proteins. The NS3 protease inhibitor sovaprevir (ACH-1625), one of Achillion’s hepatitis C therapies, is in phase II clinical trials. An NS5A inhibitor, ACH-3102, has shown promising phase I results. Piper Jaffray analyst Ted Tenthoff remarked that “Achillion has potentially best-in-class HCV protease and NS5A inhibitors, offering a counter play to the nuc[lease]-dominated regimens” than Gilead Sciences is pursuing (nucleases targets the genetic material that codes for these proteins, which is a different tactic).

Since Bristol Myers has exited the hepatitis C space (its Inhibitex acquisition flopped), Gilead and Achillion stand to be significant beneficiaries. This set-up makes Achillion a competitive acquisition candidate. However, the Inhibitex flop might be something of a warning to other companies looking to slurp up an unproven hepatitis C drug company.

This small-cap pharmaceutical company has a number of balance sheet virtues. It carries practically no debt as a percent of equity, and at the end of 2011, the company had $80 million in cash and cash equivalents on hand. Obviously, a large store of cash is critical for any biotech or pharmaceutical stock: seeing products through clinical testing rounds requires a multi-year store of cash. The new direct offering to QVT ups the total cash reserves for Achillion to over $100 million.

We like watching hedge fund activity especially when a company is at the mercy of product cycles, patent approvals, and clinical trials—things that insiders have a leg up on. So Achillion is an interesting idea for as a high-growth pharmaceutical pick. Insider information in a situation like this is something of an assurance given the fickle outcomes in small-cap pharma.

Biotech Insider Alert - $6 Stock To Hit $40

$200 Million Dollar Healthcare Hedge Fund's #1 Best Idea Right Now

The best healthcare hedge fund out there right now is one of the largest shareholders in this biotech stock. The fund returned more than 20% in each of the last 2 years with a virtually fully hedged portfolio, and it's sending out a BUY signal on this biotech stock. Get your FREE REPORT today (retail value of $300)

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

Most Famous Gay Athletes

The World’s Most Famous Circuses

Best Hair Stylists

Most Popular NASCAR Drivers

The Best Romance Movies of all Time

The Most Wanted Drug Lords

The Oldest Money Managers

The Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Best Travel Destinations in Australia

World’s Most Expensive Musical Instruments

World’s Most Famous Animals

Most Expensive Cakes in the World

Most Expensive Kosher Champagne in the World

Most Expensive Kosher Wine in the World

The Most Surprisingly Dark Fairy Tales

Most Popular Travel Destinations in Asia

The 10 Most Expensive Dresses Ever Worn to the Oscars

World’s Most Visited Art Museums

Best Countries for Photographers to Work in

Best Paid Jobs in the Film Industry

The Most Renowned Recovered Paintings Ever

Child Stars That Turned out Just Fine

Books That Were Banned in the Past Century

World’s Richest Dancers

Best Remedies against Bad Breath

Foods That Improve Your Skin Texture

Best-Selling Children’s Books of all Time

Foods That Boost Your Libido

Best-Selling Books of all Time

The Most Expensive Academy Awards Jewelry in History

Most Expensive Japanese Restaurant In New York City

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!