What Hedge Funds Think About Achillion Pharmaceuticals, Inc. (ACHN)?

Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN) is a $1.09 billion market cap biotech company focused on solutions for infectious diseases. The company has a pipeline of drugs in Phase 2 trials for the treatment of Hepatitis C Virus (HCV) that show promise. For patients taking those drugs, Achillion expects the drugs to treat and cure HCV in about 4 to 6 weeks. If approved, Achillion’s drugs would be superior to Gilead’s blockbuster drugs, Harvoni and Sovaldi, which take 12 weeks to cure HCV. Achillion estimates HCV affects 3-5 million in the U.S. and 7 to 11 million people in the combined US, EU, and Japan. Total HCV sales reached approximately $15 billion in 2014 and Achillion forecasts sales to reach $20 billion in 2016.

In May 2015, Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN) made a deal with Johnson & Johnson’s subsidiary, Janssen, in which Achillion would be eligible to receive up to $905 million in milestone payments and a mid-teens to low-twenties tiered royalty percentage on any drugs that use Achillion’s HCV assets (such as Odalasvir). Janssen is responsible for all development and commercialization costs over those drugs. On July 1 2015, Achillion also received $225 million in cash in exchange for giving Johnson & Johnson 18,367,346 shares at a price of $12.25. In October 2015, a unit of Janssen Pharmaceutical initiated a phase 2a clinical trial assessing the combination of Odalasvir, AL-335, and simeprevir in treatment naive HCV-1 patients. The study should be completed in August of 2016. In May 2016, the same unit initiated a Phase 2b trial assessing different combinations of the cocktail’s safety and efficacy for patients with certain types of HCV. The study should end in end in July 2017.

Although the Janssen deal provides Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN) with substantial liquidity, Achillion shares have retracted because many investors were expecting a buyout of Achillion instead. Some investors also sold because there is no guarantee that Janssen will use Achillion’s HCV assets, as Janssen already has a nucleotide polymerase and protease inhibitor. Despite the weakness, hedge funds are long Achillion because Achillion’s HCV assets are in some ways superior to Janssen’s inhibitors (otherwise the deal wouldn’t have happened) and the HCV market is big enough for mid-teen royalties to drive Achillion stock. In addition, Achillion has a promising platform of preclinical complement factor D inhibitors that can treat complement-related diseases such as myasthenia gravis. Analysts have a $9.50 price target.

With this in mind, let’s take a look at how hedge funds and other institutional investors we track have been trading shares of Achillion Pharmaceuticals.

Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN) has experienced a decrease in activity from the world’s largest hedge funds in recent months. Achillion  was in 23 hedge funds’ portfolios at the end of March, compared to 24 hedge funds in our database with ACHN positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity, but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Aerojet Rocketdyne Holdings Inc (NYSE:AJRD), TASER International, Inc. (NASDAQ:TASR), and Hecla Mining Company (NYSE:HL) to gather more data points.

In the eyes of most market participants, hedge funds are seen as worthless, old investment vehicles of the past. While there are greater than 8000 funds with their doors open today, Our experts choose to focus on the masters of this group, around 700 funds. These investment experts control the lion’s share of the hedge fund industry’s total asset base, and by tracking their top stock picks, Insider Monkey has deciphered many investment strategies that have historically outrun the market. Insider Monkey’s small-cap hedge fund strategy surpassed the S&P 500 index by 12 percentage points per annum for a decade in their back tests.

At Q1’s end, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from one quarter earlier. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, RA Capital Management, managed by Peter Kolchinsky, holds the biggest position in Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN). RA Capital Management has a $92.9 million position in the stock, comprising 11.9% of its 13F portfolio. The second largest stake is held by OrbiMed Advisors, managed by Samuel Isaly, which holds a $88.9 million position; the fund has 0.9% of its 13F portfolio invested in the stock. Remaining peers that are bullish comprise Steve Cohen’s Point72 Asset Management, Israel Englander’s Millennium Management and Julian Baker and Felix Baker’s Baker Bros. Advisors.

Judging by the fact that Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN) has experienced a bearish sentiment from hedge fund managers, we can see that there was a specific group of funds who were dropping their full holdings last quarter. It’s worth mentioning that James E. Flynn’s Deerfield Management dumped the largest position of all the hedgies monitored by Insider Monkey, comprising close to $18 million in stock, and William Michaelcheck’s Mariner Investment Group was right behind this move, as the fund cut about $1.3 million worth of stock.

Let’s go over hedge fund activity in other stocks similar to Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN). We will take a look at Aerojet Rocketdyne Holdings Inc (NYSE:AJRD), TASER International, Inc. (NASDAQ:TASR), Hecla Mining Company (NYSE:HL), and HFF, Inc. (NYSE:HF). This group of stocks’ market valuations match ACHN’s market valuation.

As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $95 million. That figure was $345 million in ACHN’s case. Aerojet Rocketdyne Holdings Inc (NYSE:AJRD) is the most popular stock in this table. On the other hand TASER International, Inc. (NASDAQ:TASR) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

Disclosure: none