What happened

Shares of Achillion Pharmaceuticals (NASDAQ:ACHN), a clinical-stage drug developer focused on small-molecule treatments for infectious diseases, such as hepatitis C, turned in a dismal July and sank 11% for the month, according to data from S&P Global market Intelligence. There appear to be two reasons behind Achillion's poor performance.

So what

The first negative catalyst for Achillion came on July 10, when management changes were announced. While it was noted that Mingjun Huang, Ph.D., was being promoted to Senior Vice President and Head of Research, it was overshadowed by the resignation of Executive Vice President and Chief Scientific Officer Joel Barrish, Ph.D., effectively July 14. Barrish was a key figure in the company's expansion of its Factor D inhibitor pipeline, and his departure comes at a time when the future of Achillion's pipeline is very much up in the air. Long story short, it's a worrisome development for investors.

Three biotech lab researchers analyzing vials and making notes.

Image source: Getty Images.

The other less clear downside catalyst may have been profit-taking in July. Between May 1st and July 5th, Achillion's stock increased in value by 46% without much in the way of news, other than some sparse analyst commentary. It's possible given the uncertain nature of the company's pipeline that investors decided to lock in their gains. Since November, any rallies in Achillion's stock have been met with selling pressure within a matter of weeks, and that looks to be the case again with its performance in July.

Now what

The bigger questions for Achillion lie with its pipeline: Can its licensing partnership with Johnson & Johnson (NYSE:JNJ) yield results, and can the company effectively diversify away from hepatitis C? The answer is really anyone's guess at this point -- and Wall Street doesn't like uncertainty.

In terms of hepatitis C, Achillion stands in line to receive healthy milestone payments and royalties should its complement of HCV drugs succeed. Unfortunately, Gilead Sciences has remained dominant within the HCV space, and the low-hanging fruit (i.e., the sickest patients) have mostly been treated in the lucrative U.S. market. While it's unlikely that Johnson & Johnson shelves its partnership with Achillion, the bulk of easy profits have already been seized in the HCV space, and that's not great news for shareholders.

A biotech lab researcher analyzing a blood sample and making notes.

Image source: Getty Images.

There's also overhang from involving the experimental Factor D drug ACHN-4471. The unfavorable phase 1 results for its next-generation autoimmune disease therapy showed plasma trough concentration that exceeded the accepted range for treatment. Essentially, it could mean that Achillion's dosage was too high. But if the company throttles its dosage back, it could adversely impact efficacy.

While there's plenty of hope that Achillion's pipeline could deliver game-changing therapies, this Fool would suggest sticking to the sidelines until we see genuinely tangible (and positive) clinical results.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.