Why Enanta Pharmaceuticals Shares Sank Like a Stone

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: Shares of Enanta Pharmaceuticals (NASDAQ: ENTA  ) , a biopharmaceutical company that develops small-molecule drugs to treat infectious diseases, tanked as much as 22% after rival Gilead Sciences (NASDAQ: GILD  ) reported positive late-stage clinical data for three trials involving Sovaldi (previously sofosbuvir) for the treatment of genotype 1 hepatitis-C.

So what: According to the Gilead announcement, Sovaldi, when combined with ledipasvir, demonstrated a sustained virologic response (SVR) – an elimination of detectable levels of the disease -- across all three trials ranging from a low of 93.1% to a high of 99.1%. Furthermore, the Sovaldi/ledipasvir combination without a ribavirin in treatment-naïve patients delivered an SVR of 94% in just eight weeks as opposed to the 12 that Sovaldi was initially approved for.

This could be a potential problem for AbbVie (NYSE: ABBV  ) , whose direct-acting antiviral combo drug, of which Enanta contributes ABT-450, is composed of roughly five or six pills and given over a 12-week regimen compared with Gilead's Sovaldi + ledipasvir combo, which may wind up being nothing more than a single pill. Gilead plans to file for approval for this new regimen in the first quarter of 2014.

Now what: I know it's a relatively unpopular opinion, but there could actually be room for two blockbuster treatments in the hepatitis-C space. Gilead's Sovaldi is showing remarkable results in genotype 2 and 3 patients, especially when it comes to improving patient quality of life since it can be given without interferon, but it could just as easily share the market with AbbVie's DAA-combo, which has been extremely effective in treating genotype 1 patients without the need for interferon. The launch of both of these drugs is what will really determine a "winner" (if you even want to declare one), but I see no reason as to why both can't succeed. That would mean today's drop in Enanta Pharmaceuticals which will net royalties from ABT-450 could represent an intriguing buying opportunity for investors.

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