What happened

Shares of the clinical-stage biotech Achillion Pharmaceuticals (NASDAQ:ACHN) lost 11.8% of their value on Monday. The company's stock fell following a disappointing midstage readout for its experimental hepatitis C therapy, odalasvir, which is being co-developed with Johnson & Johnson's (NYSE:JNJ) biotech subsidiary Janssen Pharmaceutical as part of both a two- and a three-drug combo therapy.

Achillion and J&J announced that the three-drug regimen known as JNJ-4178 -- consisting of Olysio (simeprevir), odalasvir, and AL-335 -- achieved a 100% functional cure rate in treatment-naive genotype 1 patients without cirrhosis at both the six- and eight-week marks.

However, JNJ-4178 didn't produce a cure rate high enough to warrant further development in genotype 3 patients without cirrhosis. As an added bit of bad news, the two-drug regimen of odalasvir and AL-335 also failed to impress in genotype 1 patients without cirrhosis, leading to its development being nixed as well. 

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Image source: Getty Images.

So what

The hepatitis C market has been rapidly moving toward combination therapies with increasingly shorter treatment durations. And prior to these midstage results, Achillion's odalasvir was expected to be a key part of this next wave of hepatitis C drugs that would go on to challenge the overwhelming commercial dominance of Gilead Sciences' ground-breaking trio of Sovaldi, Harvoni, and Epclusa.

Now, that particular value creation scenario for Achillion and its shareholders appears to be in serious doubt -- at least in the broad sense. JNJ-4178, after all, did produce noteworthy results in genotype 1 patients without cirrhosis at the all-important six-week mark.

Now what

Some investors were hoping that Achillion's hepatitis C partnership with J&J would eventually lead to a buyout offer. Unfortunately, the unfavorable dynamics facing the hepatitis C market at the moment, combined with this latest mixed bag of midstage results, suggests that an offer won't be coming down the pike anytime soon. To that end, investors may want to take a hard look at the drugmaker's other earlier stage clinical assets aimed at rare diseases before buying shares.

That said, Achillion and J&J are planning to further investigate JNJ-4178's potential in hepatitis C patients with genotypes 1, 2, 4, 5, and 6. So the door on a buyout may not be totally shut at this point.

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