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For years, satirical late-night TV host Stephen Colbert has been running a series on his show called "Better Know a District," which highlights one of the 435 U.S. districts and its congressional representative. While I am no Stephen Colbert, I am brutally inquisitive when it comes to the 5,000-plus listed companies on the U.S. stock exchanges.
That's why this week and every week from here on out, I'll make it a tradition to examine one seldom-followed company within the Motley Fool CAPS database and make a CAPScall of outperform or underperform on that company.
What Achillion Pharmaceuticals does
Achillion Pharmaceuticals is a developmental stage biotechnology company focused primarily on developing compounds to treat hepatitis C. It currently has four clinical-stage hepatitis C compounds -- three in phase 1 clinical trials and one in phase 2 trials. Its leading candidate, ACH-1625, showed 100% efficacy in early phase 2 clinical trials at high doses. Achillion also has one pre-clinical experimental drug aimed at being the next antibacterial drug.
Being a clinical development company, Achillion currently has no revenue and recently reported a slightly wider operating loss than it had in the previous year.
Whom it competes against
Now here's a targeted area of treatment with absolutely no shortage of competitors.
Achillion will need to compete not only against existing hepatitis C treatments that are given with interferon, including the current dominant treatment, Incivek, owned by Vertex Pharmaceuticals (Nasdaq: VRTX ) , and Merck's Victrelis, but also against numerous up-and-coming nucleotide-based treatments that don't use interferon.
Luckily for Achillion, the field of potential competitors shrank a bit with the cessation of mid-stage clinical trials of Bristol-Myers Squibb's (NYSE: BMY ) BMS-986094, after a patient had an adverse cardiac reaction. This drug, which was acquired by Bristol when it purchased Inhibitex for a steep $2.5 billion in January, was a gamble given it was barely out of phase 1 trials and proved to be a $1.8 billion boo-boo for Bristol as I suspected it would.
Concerns about the safety of nucleotide-based inhibitors has also been raised, which provided the impetus for investors to gang up on Gilead Sciences (Nasdaq: GILD ) and Idenix Pharmaceuticals (Nasdaq: IDIX ) . Idenix had mid-stage trials of its leading hepatitis C candidate, IDX184, halted indefinitely due to possible concerns about its inhibitor that could be similar to the problems Bristol-Myers experienced.
Achillion's biggest competition will be from the existing interferon-based treatment, Incivek, which became the fastest drug to reach $1 billion in sales since the drug was launched, and from Gilead Sciences' GS-7977, which it acquired when it purchased Pharmasset for $11 billion in 2011. The experimental treatment has shown incredible efficacy up until now and could become a standard combination therapy, as was evidenced by strong efficacy when combined with Bristol-Myers Squibb's daclatasvir.
After reviewing the prospects of Achillion Pharmaceuticals, I've decided to make a CAPScall of underperform on the company.
To me this seems like an easy call given that the hepatitis C pie just isn't big enough for this many companies to be successful. Although the target for hepatitis C-focused biotechs is to develop treatments that aren't subject to the side effects of interferon, Incivek is a very effective and highly lucrative treatment that isn't likely to slip away overnight. In addition, Gilead Sciences has a clear edge over all of the other clinical-based hepatitis C companies in terms of development and success rate -- especially with regard to patient tolerability and side effects. Finally, Bristol's purchase of Inhibitex reminds investors that promising early-stage data is really a pipedream sometimes. There are plenty of efficacy and safety obstacles that could still stand in the way of Achillion's hepatitis-based pipeline.
You can follow this selection, as well as all previous CAPScalls I've made, by clicking here to be immediately whisked away to my CAPS portfolio.
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