FDA Holds, Achillion Folds

Sometimes you hold 'em. Sometimes you fold 'em. 

And sometimes both occur simultaneously. That appears to be what's happening now with Achillion Pharmaceuticals (NASDAQ: ACHN  ) . The company announced after the market closed on Friday that the U.S. Food and Drug Administration is keeping a clinical hold in effect on hepatitis-C drug sovaprevir. That continued hold led to a widespread fold by investors: Achillion's stock plunged 57% during Monday morning trading.

Play another hand?
The FDA first placed sovaprevir on clinical hold back in June. Elevated liver enzymes found in patients in a phase 1 study generated concerns that led to the FDA's action. Achillion noted at the time that the study, which focused on drug-drug interactions between sovaprevir and Bristol-Myers Squibb's (NYSE: BMY  ) HIV drug Reyataz, was the first time that this issue was found after seven other clinical studies have been completed. This observation seemed to point more to an interaction between the two drugs and not sovaprevir itself.

Achillion moved quickly to respond to the FDA's questions. However, while the FDA stated that Achillion addressed all of the issues included in the agency's initial letter sent to the company on June 29, the agency decided that the clinical hold should remain in effect.

Achillion CEO Milind Deshpande acknowledged the company's disappointment in the FDA decision and attempted to pivot attention to other hepatitis-C drugs in the pipeline. There's ACH-3102, a NS5A inhibitor already in phase 2 studies with sovaprevir. Deshpande talked up protease inhibitor ACH-2684 even more. Achillion reported good results from an early stage study of the drug and plans to advance it to phase 2 studies.

That's a nice spin, but there's no mistaking that the company was banking on sovaprevir's success. Achillion isn't throwing the towel in yet, though. The company says that it will continue to work with the FDA to resolve the clinical hold on the drug.  

High stakes
The race for new hepatitis-C treatments is a high-stakes game that has already seen some big losers. Last year, the FDA placed a clinical hold on two hep-C drugs from Idenix Pharmaceuticals (NASDAQ: IDIX  ) . Idenix ended up canceling both programs. That wasn't the end of the matter, though. The FDA put yet another hold on the company's hepatitis-C drug IDX20963 earlier this year.

Bristol flopped with its experimental hep-C drug BMS-986094. The company halted the development program after a patient suffered heart failure that ultimately led to death. This failure led to Bristol writing off a whopping $1.8 billion on its purchase of Inhibitex. Bristol is still in the game, however, with its drug combo that includes daclatasvir, asunaprevir, and BMS-791325.

Where there are big losers, there are also big potential winners. AbbVie (NYSE: ABBV  ) thinks that it might be first to market with an all-oral regimen for treating hepatitis-C. The company experienced solid success with mid-stage trials of its drug combo and hopes to hit the market sometime next year if all goes well.

Gilead Sciences (NASDAQ: GILD  ) appears to have the best hand right now, though. Gilead's sofosbuvir in combination with ribavirin is up for an FDA decision in early December. However, that's for hepatitis-C genotypes 2 and 3. The biotech should seek approval for the much-more-common genotype 1 in 2014. Many expect that Gilead will grab the prize of being first to market with an all-oral drug.

Will Achillion be able to stay in this high-stakes game? Yes. The FDA setback won't cause the company to be completely shut out. However, it's fair to say that, unless the clinical hold on sovaprevir is removed, Achillion's hand is very much weakened.

Judging from today's market reaction, many Achillion shareholders have decided to take their chips elsewhere. Folding sometimes is the smartest move.

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