Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN) is a $1.09 billion market cap biotech company focused on solutions for infectious diseases. The company has a pipeline of drugs in Phase 2 trials for the treatment of Hepatitis C Virus (HCV) that show promise. For patients taking those drugs, Achillion expects the drugs to treat and cure HCV in about 4 to 6 weeks. If approved, Achillion’s drugs would be superior to Gilead’s blockbuster drugs, Harvoni and Sovaldi, which take 12 weeks to cure HCV. Achillion estimates HCV affects 3-5 million in the U.S. and 7 to 11 million people in the combined US, EU, and Japan. Total HCV sales reached approximately $15 billion in 2014 and Achillion forecasts sales to reach $20 billion in 2016.
In May 2015, Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN) made a deal with Johnson & Johnson’s subsidiary, Janssen, in which Achillion would be eligible to receive up to $905 million in milestone payments and a mid-teens to low-twenties tiered royalty percentage on any drugs that use Achillion’s HCV assets (such as Odalasvir). Janssen is responsible for all development and commercialization costs over those drugs. On July 1 2015, Achillion also received $225 million in cash in exchange for giving Johnson & Johnson 18,367,346 shares at a price of $12.25. In October 2015, a unit of Janssen Pharmaceutical initiated a phase 2a clinical trial assessing the combination of Odalasvir, AL-335, and simeprevir in treatment naive HCV-1 patients. The study should be completed in August of 2016. In May 2016, the same unit initiated a Phase 2b trial assessing different combinations of the cocktail’s safety and efficacy for patients with certain types of HCV. The study should end in end in July 2017.
Although the Janssen deal provides Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN) with substantial liquidity, Achillion shares have retracted because many investors were expecting a buyout of Achillion instead. Some investors also sold because there is no guarantee that Janssen will use Achillion’s HCV assets, as Janssen already has a nucleotide polymerase and protease inhibitor. Despite the weakness, hedge funds are long Achillion because Achillion’s HCV assets are in some ways superior to Janssen’s inhibitors (otherwise the deal wouldn’t have happened) and the HCV market is big enough for mid-teen royalties to drive Achillion stock. In addition, Achillion has a promising platform of preclinical complement factor D inhibitors that can treat complement-related diseases such as myasthenia gravis. Analysts have a $9.50 price target.
With this in mind, let’s take a look at how hedge funds and other institutional investors we track have been trading shares of Achillion Pharmaceuticals.