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Why Achillion Pharmaceuticals Popped and Idenix Pharmaceuticals Dropped

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Non-interferon-based hepatitis-C drug hopefuls Achillion Pharmaceuticals (Nasdaq: ACHN  ) and Idenix Pharmaceuticals (Nasdaq: IDIX  ) are heading in different directions today -- Achillion rose as much as 19%, while Idenix fell as much as 15% -- following analyst rating and price target changes for each company.

So what: Achillion rocketed higher from the onset of trading because of Bank of America Merrill Lynch raising its rating on Achillion to "buy" from "underperform," and boosting its price target to $13 from $7. Deutsche Bank also initiated Achillion with a "buy" rating and a $12 price target. Bank of America cited enthusiasm over Achillion's hepatitis-C pipeline as the reason behind the upgrade. Conversely, Bank of America Merrill Lynch lowered its rating on Idenix to "neutral" from "buy," as well as reducing its price target to $6 from $8, because of recent concerns over its lead drug candidate, IDX-184.

Now what: As usual, no matter how much we agree or disagree with analyst ratings, we can't allow them to sway our investment thesis as they have only a very short-term effect on a stocks' share price.

What's really going on here is that Achillion has had very few setbacks as compared to the nucleotide-based hepatitis-C drug hopefuls that have struggled with safety concerns since Bristol-Myers Squibb (NYSE: BMY  ) discontinued its leading hepatitis-C candidate, BMS-986094 (the drug it acquired when it purchased Inhibited for $2.5 billion in January). Since then, Idenix has had two of its four hepatitis-C trials halted indefinitely as the safety of the compound is explored, and even Gilead Sciences (Nasdaq: GILD  ) , whose GS7977 has breezed through clinical trials with flying colors, has received a discerning eye from investors despite zero safety issues thus far.

In my recent "CAPScall of the Week," I forecasted that Achillion would underperform the market. While I'm down on that call right now, I don't see a large enough piece of pie being left over for the company given that Vertex Pharmaceuticals' (Nasdaq: VRTX  ) Incivek -- the fastest drug to reach $1 billion in total sales -- is unlikely to relinquish its crown as the premier FDA-approved hepatitis-C treatment anytime soon, and Gilead's drug is further along in clinical studies and performing marvelously.

Craving more input? Start by adding Achillion Pharmaceuticals and Idenix Pharmaceuticals to your free and personalized watchlist so you can keep up on the latest news with the each company.

Fool contributor Sean Williams owns shares of Bank of America, but has no material interest in any other companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

Motley Fool newsletter services have recommended buying shares of Vertex Pharmaceuticals and Gilead Sciences. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (1) | Recommend This Article (3)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 19, 2012, at 3:25 PM, truep287 wrote:

    Sean, I disagreed with your CAPScall and I disagree with your assessment here.

    1. Vertex's Incivek is the best current (emphasis on current) therapy. Achillion and Gilead are working on the next generation of hep C treatment. Incivek will not have a place at the table when the new protease/polymerase inhibitors come out. It would have been like saying Augmentin didn't have a chance because penicillin was so good.

    2. I can't think of a single medical condition that is only treated by one medicine simply because it was "first to market" or "better". Is there only one medication for hypertension, diabetes, HIV? As long as there are side effects and issues of cost, there will always be a need for multiple options to treat a disease. Case in point, for hep B, Gilead came to the market with Viread a few years after BMS had brought Baraclude. Despite being a few years behind, Gilead quickly overtook BMS and now has the largest market share for hep B treatment.

    You may be misinforming your readers if you really don't understand what's happening in this sector.

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