What: Following the release of quarterly filings showing that healthcare hedge fund RA Capital Management boosted its stake in the company last quarter, shares in Achillion Pharmaceuticals (NASDAQ:ACHN) soared by 10% earlier today.
So what: The massive success of Gilead Sciences' Sovaldi launched a speculative frenzy last year among drugmakers wanting to develop their own hepatitis C therapies.
That frenzy led to Achillion's shares tripling between last spring and fall and ultimately to its biggest investor, RA Capital, beginning to unwind what, at its peak, was a massive 20 million plus share stake in the company. By the end of last year, RA Capital's position in Achillion had fallen to below 7 million shares.
RA Capital's decision to begin buying back shares last quarter; therefore, could be significant because it shows the the hedge fund manager may be done selling and that the firm believes that the recent sell-off in Achillion's shares to less than $8 is overdone. Exiting the second quarter, RA Capital owns 9.9 million shares in Achillion, up 21% from the first quarter.
Now what: Achillion's share drop was tied to disappointment a suitor didn't show up and buy the company lock, stock, and barrel, but investors might not want to discount the importance of the collaboration deal Achillion inked with Johnson & Johnson in May.
J&J has one of the deepest portfolios of hepatitis C therapies, including Invicek -- the prior generation's top seller -- and Olysio, a drug that was commonly used last year alongside Sovaldi prior to the approval of Harvoni last October.
Additionally, J&J bulked up its hepatitis C R&D program last fall with the acquisition of Alios, a company developing nucleotide inhibitors that could conceivably be paired up with Achillion's ACH-3102, an NS5A inhibitor Achillion hopes is better than Gilead's ledipasvir, which is the drug used alongside Sovaldi in Gilead's Harvoni. In small mid stage trials, pairing up ACH-3102 with Sovaldi delivered 100% functional cure rates in six and eight weeks, so there could be significant potential associated with Achillion's pipeline that isn't being fully appreciated by investors.