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Source: Achillion Pharmaceuticals.

What: After announcing 100% cure rates in hepatitis C patients during midstage trials earlier this year, hope ran high that Achillion Pharmaceuticals (NASDAQ:ACHN) would get bought, lock, stock, and barrel.

However, because Johnson & Johnson (NYSE:JNJ) decided to ink a collaboration deal with the company in May instead, Achillion's shares have been tumbling, including a 13.3% drop in August. Achillion'w share-price descent could present an opportunity to buy, but only for risk-tolerant investors.

So what: Gilead Sciences' (NASDAQ:GILD) Sovaldi, a nucleotide NS5B inhibitor, and Harvoni, a mash-up of Sovaldi and the NS5A inhibitor ledipasvir, racked up sales totaling over $12 billion last year and that success has led to a flurry of hepatitis C drug research and development among competitors, including Johnson & Johnson.

Johnson & Johnson's hepatitis C research pipeline includes the once top-selling HCV drugs Incivek and Olysio, a protease inhibitor, as well as a nucleotide NS5B inhibitor, AL-335, that it acquired when it bought Alios for $1.75 billion in cash last November.

By acquiring the rights to Achillion's hepatitis C drugs, Johnson & Johnson adds Achillion's ACH-3102, a NS5A inhibitor, ACH-3422, another nucleotide NS5B inhibitor, and Sovaprevir, another protease inhibitor, to the mix.

In exchange for rights to those drugs, Johnson & Johnson agreed to pay Achillion up to $1.1 billion in potential milestones and royalties on eventual sales from the mid-teens to the low 20% range, depending on sales. Johnson & Johnson also purchased 18.4 million newly issued shares in Achillion for $12.25, a price that's a significant premium to where Achillion shares are trading today.

Take Long View

Now what: The next battle among hepatitis C drugs will be waged over treatment duration and efficacy across all hepatitis C genotypes.

Because combining Achillion's ACH-3102 with Sovaldi over six weeks cured 100% of patients and halved the current standard treatment duration, investors were hoping for a best-in-class solution, especially since Achillion was researching a four-week treatment cycle.

However, Johnson & Johnson appears to be abandoning a Sovaldi plus ACH-3102 short duration research program in favor of a combination that includes ACH-3102, AL-335, and Olysio.

A phase 1 trial of that triplet is expected to wrap up next month, and if results are positive, it could clear the way for midstage trials in 2016 and late-stage trials in 2017. However, that timeline may not be quick enough, given that Gilead Sciences is researching its own six-week duration therapy.

The hepatitis C market is unquestionably lucrative, but it's also highly competitive. Johnson & Johnson has the financial firepower and expertise necessary to succeed, but there's no guarantee their efforts will pan out, and for that reason Achillion pharmaceuticals shares are risky; especially since we've take a step back to phase 1 trials.

Regardless, I think there could be an opportunity for risk-tolerant investors willing to take the long view on Achillion; particularly given that its market cap is currently less than the potential milestone payments it could earn from Johnson & Johnson.

Todd Campbell owns shares of ACHILLION PHARMACEUTICALS, INC. and Gilead Sciences. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. The Motley Fool owns and recommends Gilead Sciences. The Motley Fool recommends Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.