What happened

After the company updated investors on its second-quarter financials and the progress it's making in its clinical-stage drug pipeline, shares in Achillion Pharmaceuticals (NASDAQ:ACHN) are soaring 24% higher at 11:45 a.m. EDT today.

So what

Since licensing its hepatitis C clinical-drug pipeline to Johnson & Johnson (NYSE:JNJ) in 2015, Achillion Pharmaceuticals has been knee-deep in developing new therapies for other indications. Yesterday afternoon, the company shared with investors its second-quarter performance and its clinical-stage pipeline progress. 

Gold and silver pills spill out of a large gold and silver pill onto a pile of money.


In the second quarter of 2017, Achillion Pharmaceuticals lost $22.5 million, which was an increase from the $18.5 million it lost in Q2 2016. A slight increase in general and administrative spending and a larger increase in research and development spending were the culprits behind the bigger loss. Specifically, R&D expenses were $18.3 million in the quarter, up from $14.2 million for the same period in 2016. General and administrative expenses were $5.4 million, up slightly from $5.2 million last year. 

While the bigger loss isn't good news, management reported progress on ACH-4471 that suggests its increased spending may pay off someday. ACH-4471 is a Factor D inhibitor oral drug that may help patients with a rare disease called paroxysmal nocturnal hemoglobinuria, or PNH, a disease in which the immune system attacks and destroys red blood cells.

According to management, four patients given ACH-4471 showed "meaningful improvements" in LDH, hemoglobin, fatigue score, and other markers of response. These findings have Achillion Pharmaceuticals planning to expand its ACH-4471 trial to include more patients. 

Now what

PNH is a life-threatening disease affecting fewer than 10,000 people in the U.S. and Europe combined, but it's a meaningful market for Achillion Pharmaceuticals' to be targeting. There are few treatment options, but one of them is Alexion Pharmaceuticals' (NASDAQ:ALXN) Soliris, a medicine that costs hundreds of thousands of dollars per year. Soliris is approved for multiple indications, including PNH, and last quarter, sales totaled $814 million, up 16% year over year.

Tapping into the PNH market via ACH-4471 could eventually be profit-friendly, but we have a ways to go before we see this drug commercialized. Its efficacy needs to be confirmed in more trials before we know for certain that Achillion Pharmaceuticals has a winner on its hands, and those studies won't be cheap to conduct. For example, management expects to spend between $75 million to $78 million on R&D this year alone.

Overall, ACH-4471 may indicate that Achillion Pharmaceuticals could one day benefit from something other than its relationship with J&J, but this is still a risky stock that's likely to post losses for the foreseeable future, so investors should approach it cautiously.

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