Don't let it get away!
Help yourself with the Fool's FREE and easy new watchlist service today.
Achillion Pharmaceuticals' (Nasdaq: ACHN ) chief medical officer resigned and shares in the biotech fell 4% yesterday. Was Elizabeth Olek really that important to the organization? I don't think so.
If anything, you'd think her leaving was a good thing. As you'll recall, the company kind of bungled its presentation of data of its hepatitis C drug ACH-1625 at the annual meeting of the European Association for the Study of the Liver. Who knows whether it was really Olek's fault, but the buck stops with the chief medical officer.
The company didn't say the reason she was leaving, but this could certainly be a situation of an executive quitting to avoid being let go. Milind Deshpande, current president of research and development and chief scientific officer, will take over clinical trial operations for the company's hepatitis C program.
If Achillion is better off with Olek -- or at least not any worse off -- then why did the stock fall? My guess is investors hoping for a buyout came to a realization that it isn't going to happen anytime soon.
Since Gilead Sciences (Nasdaq: GILD ) bought Pharmasset and Bristol-Myers Squibb bought Inhibitex, the remaining small hepatitis C drug developers have been trading with a premium added to their price in expectation of a buyout. Like HIV, hepatitis C is treated with a cocktail of drugs. Partnerships are possible, but having full control of compounds in different classes makes it easier to develop a cocktail.
If a buyout was imminent, there'd be no reason for Olek and Achillion to part company. Achillion wouldn't need to demand her resignation, if that's what happened, and Olek certainly wouldn't want to leave, potentially giving up stock options and other incentives that might vest upon an acquisition.
The moral of the story here is that investors shouldn't buy in hopes of a buyout. Sure Vertex Pharmaceuticals (Nasdaq: VRTX ) or Merck (NYSE: MRK ) or one of the other players could decide it needs to fill a hole. One of the drugs from the frontrunners -- Gilead, Bristol, and Abbott Labs (NYSE: ABT ) -- could fail. But that's a really poor investment thesis.
Fool co-founder David Gardner and his team at Rule Breakers aren't counting on an acquisition to get solid returns from one of their recent health-care picks. Find out what it is and why they like it in the Fool's free report "Discover the Next Rule-Breaking Multibagger."