PropThink: Does Achillion Have a Place in the HCV Market of the Future?
By Ivan Deryugin
The biotechnology sector is one where growth is, for the most part, fueled by a single factor: new drugs. Companies that develop the next generation of drugs for a market stand to gain billions over the life cycle of that drug. And no health market embodies that more than the hepatitis C (HCV) market. Multiple companies, including Gilead Sciences (NASDAQ: GILD), Vertex Pharmaceuticals (NASDAQ: VRTX), and Abbot Labs (NYSE: ABT) are vying to gain a piece of a market estimated to be worth up to $20 billion. However, there is one company that investors seem to have forgotten: Achillion Pharmaceuticals (NASDAQ: ACHN), and it is one that I feel cannot be overlooked.
Achillion rallied sharply in 2011 and early 2012 as merger mania gripped the HCV sector. With Pharmasset bought out for an 84% premium by Gilead, and Inhibitex bought for $2.5 billion by Bristol-Myers (NYSE: BMY), investors assumed that Achillion and Idenix Pharmaceuticals (NASDAQ: IDIX) were next. But so far, no deal has materialized, and that has pressured the stock prices of these two companies. But what has pressured Achillion more is the perceived weakness of its competitive position. Achillion's protease inhibitors, led by lead candidate ACH-1625 (now known as sovaprevir), are seen as being inferior to the nucleotide's under development across the sector, led by Gilead's GS-7977. Most drug companies with HCV compounds under development presented their latest data at the American Association for the Study of Liver Disease's annual meeting in Boston (from November 9-13), and although Achillion sold of sharply as the conference progressed, falling from around $9 to under $8, I believe that this should to be seen as a buying opportunity.
Protease Inhibitors: Not as Weak as They Seem
The largest contributing factor to Achillion's slide was data from Abbot Labs' AVIATOR trial, which was a Phase IIb trial of a combination of three of its HCV compounds. However, these were not NS5A nucleotides. Rather, Abbot's drugs were protease inhibitors, which are generally seen as being weaker. How can this be? The answer lies in the complexity of the science behind this new generation of HCV treatments. As Bristol-Myers (which released its own non nucleotide HCV data at the conference) noted, "The nuc [nucleotide] may not be as sacrosanct as we thought it may have been.It was a big 'a-ha!' moment with our internal triple combination." And as Achillion's own chief scientific officer stated at the conference, "A few years ago, no one thought you could develop a regimen without interferon." The science of HCV treatment is rapidly evolving, and investors should not discount Achillion so quickly. Wells Fargo, in its latest note on Achillion, said that the market is likely misinterpreting this latest round of clinical results. The firm believes that Abbot's data, rather than weakening Achillion's competitive position, instead affirms it. Abbot's data demonstrates that a treatment that combines protease inhibitors with nucleotides can produce high cure and sustained virologic response rates. And a combination of Achillion's two leading HCV candidates, ACH-1625 and ACH-3102 (which is Achillion's own nucleotide compound) could produce cure rates as good, or even better than what Abbot has posted. Furthermore, ACH-3102 has, in genotype 1a patients, higher resistance to mutation than other nucleotides, which could give Achillion an advantage relative to its peers. Continue reading by clicking here.
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