Be Greedy on Achillion After Its Selloff

TheStreet.com

NEW YORK (TheStreet) -- The love affair that investors had with biotech company Achillion seems to have run its course, as shares recently plummeted 25% in their biggest one-day loss in six years.

It's worth a detailed look at why the stock fell.

The company is developing what it calls Sovaprevir, which is also known as ACH-1625. The drug is a once-a-day NS3 protease inhibitor and is currently in Phase II clinical development. It is considered highly potent.

Protease inhibitors are antiviral drugs used to treat diseases such HIV/AIDS and hepatitis C.

On Tuesday, Achillion announced that U.S. regulators had put trials of the drug on hold after some patients experienced elevated liver enzymes. The increased enzymes were found in healthy patients when sovaprevir was combined with two medicines used to treat HIV infections in order to test for possible drug interactions.

It was not immediately known what produced the higher-than-expected levels, but Achillion says it might have been the combination of the drugs.

For what it's worth, it was Achillion that decided to suspend further testing of Sovaprevir and immediately notified the Food and Drug Administration of the test results.

I don't deny that Achillion brings considerably more risk than a much improved Abbott Labs or a powerhouse like Johnson & Johnson . But after this recent 25% decline, Achillion's stock has become a bit more interesting, if not significantly undervalued.

Before you disagree, understand that the biotech sector is all about the future. And the key to the future of these companies is their product pipelines.

In that regard, I would argue that Achillion's pipeline, which includes treatment of chronic hepatitis-C infection, is as good as any in this space.

This recent setback notwithstanding, there are still reasons to be optimistic, because the company is also working on advancing what it calls ACH-3102, a second-generation inhibitor of hepatitis-C that is considered to have enhanced resistance capabilities compared with first-generation inhibitors.

What's more, the company also recently announced the nomination of ACH-3422, which is a preclinical compound designed to inhibit HCV NS5B polymerase, a form of the hepatitis C virus.

The company expects to begin in-human studies of this new nomination by the first half of 2014, which will then be followed by combination development in the second half of that year.

Between ACH-1625, ACH-3102, and now ACH-3422, Achillion has plenty of offensive firepower to take on some of the bigger biotech rivals for years to come. And if the company can successfully launch any type of combo therapy to match a market leader like AbbVie , shares of Achillion should take off.

Accordingly, astute investors with an above-average risk tolerance should consider taking a position in the stock, especially given the recent drop. It's an overreaction.

With Achillion recently trading at $6.30, the stock has a chance to double over the next six to 12 months even with small breakthroughs in Sovaprevir.

At the time of publication, the author held no position in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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