Today’s pick provides an opportunity to buy into an exciting biotechnology company with several new drugs in the pipeline. The shares were beaten down by panic selling, offering investors entry at a discounted price.
Achillion Pharmaceuticals, Inc. (ACHN)
from The Cheap Investor
Achillion is a biopharmaceutical company focused on solutions for the most challenging problems in infectious disease—Hepatitis C Virus (HCV) and resistant bacterial infections. The Company is currently developing three clinical candidates for the treatment of chronic hepatitis C infection.
Lastly, Achillion has discovered a proprietary nucleotide inhibitor of NS5B polymerase, ACH-3422. Achillion also has a portfolio of antibacterial drug candidates for the treatment of serious, resistant bacterial infections. Each of these programs was discovered through Achillion’s own proprietary internal drug discovery efforts.
The emergence of drug resistance seen with current antiviral and antibacterial therapies creates a continuing need for new drugs, providing a large and growing potential business opportunity. In addition, development cycle times tend to be somewhat shorter in infectious disease than other therapeutic areas, and early drug development results tend to be more predictive of longer term results.
Achillion was a high flyer in February when the stock was selling at its 52-week high of $10.17. The Company was smart to take advantage of that price, and it raised $125 million with an offering at $10 per share. In September, the stock got hammered, falling 59% over a two-day period after the FDA (Food and Drug Administration) decided to keep a clinical hold on its leading hepatitis-C drug candidate, Sovaprevir, despite its meeting all requirements laid out by the FDA’s clinical hold issued three months ago. This negative news caused panicked shareholders to dump shares, causing the price to fall to a very attractive level. We’ve learned that situations like this can be a great opportunity for investors.
Insiders own 13% of the 97 million total shares outstanding, and institutions own 91% of the float (shares in public hands). QVT Associates Group (Achillion’s second largest shareholder) panicked and unloaded 2.8 million shares on September 30. RA Capital Mgmt (Achillion’s largest shareholder) recognized the opportunity and purchased 7.9 million shares at prices ranging between $2.30 and $2.85 in October and November.
The Company has an excellent balance sheet with $173 million ($1.80 per share) in cash, a book value of $1.83 per share and debt of only $525,000. Like most development stage biotech companies, Achillion has no revenues and a loss of $45.5 million for nine months.
We like Achillion Pharmaceuticals because it has several products in FDA trials and a huge amount of cash to finance its drug development. We think the stock has the potential of moving 50% over the next year. If Achillion receives positive FDA news on one of its drug candidates, the price could move significantly higher.
The Cheap Investor, Bill Mathews, www.thecheapinvestor.com, 847-697-5666, December, 2013