Why Achillion Pharmaceuticals Is Crashing 36% Today

By Markets Fool.com

Image source: Achillion Pharmaceuticals.

Continue Reading Below

What happened

After updating investors on its third-quarter performance and reporting that it's still looking for a safe dose of ACH-4471 -- an oral complement factor D drug -- to study further, shares in Achillion Pharmaceuticals (NASDAQ: ACHN) are nose-diving 36% today.

So what

Achillion Pharmaceuticals licensed its hepatitis C drug pipeline to Johnson & Johnson (NYSE: JNJ) last year, and ever since, it's been focusing its R&D spending on the development of oral complement Factor D inhibitors that could eventually target autoimmune diseases, includingparoxysmal nocturnal hemoglobinuria (PNH), C3 glomerulopathy (C3G), and dry age-related macular degeneration (dry AMD).

In the company's third-quarter results, management said Johnson & Johnson plans to begin a phase 2b study of a six-week hepatitis C triplet therapy that delivered 100% functional cure rates in phase 2a trials. However, that news was overshadowed by management's admission that it had observed plasma trough concentrations in ACH-4471 patients participating in a safety and dose escalation study that "exceeded the range the companyanticipates for potential treatment of patients."

Continue Reading Below

Now what

ACH-4471 is in the earliest stages of research, and Achillion plans to "assess additional dosing regimens to maintain the projected effective trough concentrations and safety of ACH-4471."

The uncertainty regardingACH-4471 is a blow because it represented the lion's share of Achillion's efforts to diversify from its exposure to hepatitis C. ACH-4471 R&D is continuing, so there's still the possibility of finding a dose that's effective and safe, but investors are right to worry about this program's future.

Nevertheless, ACH-4471's setback could be creating an opportunity for risk-tolerant investors to profit longer-term from Johnson & Johnson's ongoing efforts to compete in hepatitis C. The hepatitis C drug market exceeded $20 billion last year, and currently, the shortest approved treatment regimen on the market is eight weeks. Conceivably, a shrinking of treatment duration to six weeks could boost patient adherence, improve cure rates, and reduce payer costs.

That being said, there's no guarantee Johnson & Johnson's hepatitis C studies will continue to deliver functional cure rates at these levels as the number of patients participating in its studies increases. There's also no guarantee that safety concerns won't emerge that could derail the development of Achillion Pharmaceuticals' hepatitis C regimens. Overall, Achillion Pharmaceuticals remains a risky stock, and it arguably just got a lot riskier because of ACH-4471.

A secret billion-dollar stock opportunity
The world's biggest tech company forgot to show you something, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early, in-the-know investors! To be one of them, just click here.

Todd Campbell owns shares of Achillion Pharmaceuticals.Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned.Like this article? Follow him onTwitter where he goes by the handle@ebcapitalto see more articles like this.

The Motley Fool recommends Johnson and Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.