Achillion Gets a Boost from J&J

02/27/2017 7:00 am EST

Focus: STOCKS

Bill Mathews

Editor & Founder, The Cheap Investor

Achillion Pharmaceuticals (ACHN) discovers, develops, and commercializes small molecule drug therapies for infectious diseases and immune system disorders, observes Bill Mathews, small cap expert and editor of The Cheap Investor.

It has three drug candidates for treating chronic hepatitis C virus (HCV) infection — Odalasvir is a NS5A inhibitor, which has completed Phase IIa clinical trials; ACH-3422, a
NS5B nucleotide polymerase inhibitor; and Sovaprevir, a NS3 protease inhibitor, which has completed Phase II clinical trial.

The company is also developing ACH-4471, a complement factor D inhibitor that is in Phase I clinical trial to treat patients with paroxysmal nocturnal hemoglobinuria and one additional systemic ultra-rare disease and other factor D inhibitors.

It has a license and development agreement with Ora, Inc. for the development and commercialization of ACH-702, an antibacterial drug candidate; and a license and collaboration arrangement with Janssen Pharmaceuticals to develop and commercialize antiviral drug candidates for treating HCV infection.

We recommended Achillion Pharmaceuticals in the December 2013 issue at $2.92, and it soared 478% to a high of $16.87. With the price falling back to near $4, we wanted to take another look at the stock.

The company has a huge amount of cash ($409 million or $3.00 per share), a book value of $3.15 per share and a tiny debt of just $300,000. Insiders own 16% of the 137 million shares outstanding, and 173 institutions own 79% of the float.

In 2015, Achillion received $225 million from Johnson & Johnson an exclusive, worldwide license to develop and, upon regulatory approval, commercialize HCV products and regimens containing one or more of Achillion's HCV assets.

In September 2016, Achillion announced positive interim results from the Janssen-sponsored 604 phase IIa clinical trial. Based on those positive results, Janssen plans to advance the clinical study (OMEGA-1) in HCV patients along with an expanded 604 study.

Achillion Pharmaceuticals has been a great investment for us. It has several drug candidates in various stages of FDA trials. With $409 million in cash, it has enough capital to survive for about four years at its current burn rate.

Perhaps its biggest asset is the $225 million investment from Johnson & Johnson Innovation, which purchased 18.4 million shares at $12.25 per share. That’s a big reason why we think Achillion is a great buy at its current low price.

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