Achillion (ACHN), a small biopharmaceutical that focuses on infectious disease, knows the story about hepatitis C very well. A liver disease caused by the hepatitis C virus (HCV), viral hepatitis is the leading cause of liver cancer and the most common reason for a liver transplant. An estimated 4.1 million Americans are infected with the HCV with 17,000 new cases annually. And the disease causes an estimated 10,000 to 12,000 deaths annually in the U.S.

Currently, few therapeutic options exist, and that's where Achillion comes in. Existing treatments aren't always effective and have considerable side effects. Achillion is among the drug companies developing a new class of drugs known as protease inhibitors, which target an enzyme that breaks down the protein and facilitates production of the new viruses. By blocking the virus's functioning, protease inhibitors interfere with continued infection.

Says Achillion CEO Mike Kishbauch (pictured): "Our lead candidate appears to be a very promising compound and has been a stimulus for the company's growth." That candidate is called ACH-1625 -- "a potent inhibitor of hepatitis C virus protease that a recent panel of HCV clinical experts called the best and cleanest looking new direct antiviral in development today," says Kishbauch.

Achillion is in the process of finishing a Phase 1 proof-of-concept study. The company will be presenting more in-depth details about these studies at the International Liver Conference in Vienna, Austria, on Thursday and Friday. It will report additional results a few weeks after the conference.

Four Advantages


Realizing that some of its competitors are farther ahead with their protease inhibitor development -- like Vertex's (VRTX) telaprevir and Merck's (MRK) boceprevir -- Achillion expects that ACH-1625's demonstrated potency and safety will be enough to "differentiate it from the pack and push it ahead of competition once it hits the market."

So far, says Kishbauch, ACH-1625 has shown four significant characteristics over competitors "that could make it a best in class." First, he says, is "its potency in reducing the [amount of virus] is at the top end vs. any of the other similar drugs discovered. Second, other first-generation protease inhibitors have safey and tolerability concerns such as rashes and anemia. ACH-1625's safety and tolerability profile is so far among the cleanest of any the drugs in development.

"Third, ACH-1625 appears likely to be dosable at once-a-day, while first-generation drugs will need to be dosed every 8 to 12 hours. Fourth, one of the surprisingly serendipitous finding is its durability, meaning that once you discontinue dosing, the drug continues to have antiviral effect up to seven days after discontinuation of dosing. Other drugs return to baseline virus levels after 24-48 hours. This is important, in particular, with missed doses."

Achillion has three additional hepatitis C drugs: ACH-1095 has been in partnership with Gilead Sciences (GILD) since 2004; ACH-2676 is considered the backup to ACH-1625; and ACH-2684, which Kishbauch says "appears to be a hundred times more potent and works against resistant mutations and the full range of the six genotypes of the hepatitis C virus."

Big Pharma and Wall Street Are Interested

"We are in fairly heavy discussions of partnership of ACH-1625," Kishbauch says. "There is a great deal of interest among the significant players of the field, and it's highly likely that we will partner with one of the major players in hepatitis C within the next year if not sooner."

Kishbauch explains reason for that interest: "Under any kind of reasonable pricing assumption, most cast the value of the market for these antivirals at $8 billion to $10 billion. Even with modest penetration of several players, the products could be worth $1 billion or greater."

"We are in a position to conduct those discussions at a measured pace," he says. CFO Mary Kay Fenton explains, "We completed an offering in January and raised $25 million to fund advancement of our core assets -- finish Phase 1 and launch Phase 2 at the end of the year."

Wall Street seems interested as well. "We were 2.5 times oversubscribed on the offer," Fenton says, who adds that a "who's who of investors came in to take major pieces."

Seconding the Motion


Several analysts are indeed sounding bullish. Following the Phase 1 results, analysts at National Securities wrote: "A number of critical pieces of scientific evidence suggests that the ACHN-1625 profile is that of a second-generation protease Inhibitor vs. the first-generation molecules now in the late stages of clinical development."

Analysts at Oppenheimer wrote: "Given the results from the first cohort, and preclinical results, we would expect ACH-1625 to continue to show strong antiviral activity as additional data become available." And analysts at Canccord Adams called the results "impressive" and wrote in a note: "On the heels of these positive data, we expect ongoing partnership discussions for ACH-1625 to gain further momentum."

Achillion's share price has nearly doubled over the last year, and is now around $3 per share. But on average analysts expect it to at least double over the next year. Says Kishbauch: "The company has business and scientific momentum at this point." However, investors should remember that like with so many small biotechs, the risks are great -- and those early-stage compounds may never pan out.

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