Could Achillion (ACHN) be the Biggest Beneficiary of Merck's (MRK) Idenix (IDIX) Purchase?

Andrew Klips |

Shares of Achillion Pharmaceuticals (ACHN) are roaring ahead in Tuesday action after the U.S. Food and Drug Administration lifted its clinical hold on the Achillion’s experimental drug sovaprevir for treating the hepatitis C virus (HCV). The news of the removal came at an opportune time with HCV remaining hot button, thanks to the $3.85 billion buyout offer by Merck & Co. (MRK) for Idenix Pharmaceuticals (IDIX) on Monday. The offer was a whopping 240 percent premium for shares of IDIX a day before the deal was announced. Rumor has it that several large pharmas were interested in Idenix, putting a spotlight on other small biotechs in the space. 

Although there were no shortage of eyebrows raised over the steep price tag for a company that hasn’t even cleared phase 2 trials with a drug yet, there are also several good reasons why Merck was willing to break the bank for a new HCV drug candidate, as noted by Equities.com author Joel Anderson. The momentum has got traders fired-up and looking for more, which has Wall Street players looking to Achillion now that the FDA is removing the shackles on sovaprevir.

Hep C Market a Major Battleground

The HCV market certainly is enormous, as the World Health Organization estimates that some 180 million people globally have the hep C virus. Stateside, the Centers for Disease Control and Prevention figure that there are more than five million Americans with HCV, although most people aren’t even aware that they have it.

Achillion is viewed by many as an acquisition target because its HCV therapies hit all the hot therapeutic areas for the blood-borne disease: nucleotide, NS5A and protease inhibitors. There are actually a number of similarities between Achillion and Idenix, including the fact that they both have had HCV drugs in development halted by the FDA in recent years. Elsewhere, the companies’ pipelines are similar, with Achillion having four drugs in clinical trials (three for Idenix) with the most advanced for both companies being two drugs in phase 2 trials for HCV.

Neither company has any revenue either. Achillion won the race for whom could lose money slower, posting a net loss of $16.1 million, or 17 cents per share, in the first quarter, compared to Idenix losing $34.1 million, or 24 cents per share. Cash and cash equivalents at the end of the first quarter were $144.7 million for Achillion and $205.0 million for Idenix.

For Achillion, clinical research on its flagship drug sovaprevir, a NS5A/4A protease inhibitor, was frozen last summer so scientists and regulators could take a closer look at elevated alanine transaminase (ALT) liver enzyme levels in patients treated with sovaprevir and atazanavir following an early-stage trial. A separate phase 2 trial was allowed to move forward with sovaprevir as a HCV therapy. Two previous phase 2 trials of 200 mg doses of sovaprevir showed the drug to be clinically active and well tolerated by HCV patients, including one trial which coupled sovaprevir with Achillion’s ACH-3102 to clinically “cure” genotype 1b HCV patients.

Sovaprevir Not Back... Yet

Although close, the FDA didn’t completely release sovaprevir back into the clinic. The agency removed the clinical hold with stipulations of a maximum of 200 mg once daily of sovaprevir in HCV patients and in single dose trials in healthy volunteers. The FDA kept a partial clinical hold for multiple dose studies that may be conducted in healthy volunteers, requiring prior review and approval of the protocol by the FDA.

The FDA could have probably said that sovaprevir was only having the clinical hold removed to treat left-handed, brown haired HCV patients in Illinois and the market would likely still responded favorably. The fact is that anything promising towards developing a new drug that could potentially one day compete with Gilead’s (GILD) instant blockbuster Sovaldi ($2.3 billion in Q1 sales) is reason enough for a stock price to leap ahead. 

The news Tuesday was also accompanied by the Achillion announcement that dosing of ACH-3422, uridine-analog nucleotide polymerase inhibitor, has begun for seven days in patients with genotype 1b HCV in an ongoing phase 1 trial. Proof of concept results are expected this fall.

Shares of ACHN galloped ahead on Monday as part of the Idenix acquisition news rally and have not slowed on Tuesday, riding ahead more than 62 percent as the day winds toward the closing bell to $6.90 each.  Shares are up about 140 percent so far this week as the stock has essentially recovered every bit of lost ground since it got flushed from these levels in October when the FDA maintained the hold on sovaprevir.  The FDA taketh and the FDA giveth back, I guess.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
GILD Gilead Sciences Inc. 72.72 0.30 0.41 2,928,979
ACHN Achillion Pharmaceuticals Inc. 4.22 0.16 3.82 531,558
MRK Merck & Company Inc. (new) 60.88 -0.25 -0.41 2,883,588
FNNWF Franco Nev Corp 17 Wts 9.91 0.00 0.00 75

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