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.

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

The Best B-Boy Movies

Most Awesome Hip Hop Documentaries

Foods That Stain Your Teeth

Richest Doctors in the World

The Best Movie Sountracks Ever

The Highest Grossing Musicals on Broadway

The Most Successful Reality TV Stars

Cheapest Cities to Visit in the US

Most Expensive Summer Camps

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

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 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!