Why the Smart Money Is Bullish on Achillion Pharmaceuticals

By Andrew Keene  MAY 31, 2013 2:35 PM

Hedge fund support and a new hepatitus C drug could make for a strong showing by ACHN stock in the future.

 


Achillion Pharmaceuticals (NASDAQ:ACHN) is a biopharmaceutical company headquartered in New Haven, CT, and specializing in the discovery, development, and commercialization of treatments for infectious diseases. Specifically, it is engaged in the development of antivirals to combat viruses and infections such as chronic hepatitis C and resistant bacterial infections. ACHN has been trading well lately, opening today at $7.75 with share prices climbing the ladder by 6.5% to a current price of $8.30 at the time this article was written. Its current stock price is directly in between the company’s 52-week range which saw it hit a low of $5.42 last August before climbing to a high of $11.36 this past October.

There has been a lot of action for Achillion this week as it announced on Wednesday that longtime CEO and President Michael Kishbauch had decided to retire from the company after nine years of service. Kishbauch was replaced by Milind Deshpande, Ph.D. in a joint announcement and ACHN saw its share prices drop as a result. However, the fall was short-lived as stock prices have surged in the past two days following ACHN’s presentation at the 38th Annual Deutsche Bank Health Care Conference where it revealed its new drug, ACH-3422, designed to combat hepatitis C, which is the most common cause of viral hepatitis. The disease causes inflammation of the liver, which can lead to liver cancer, liver failure, and in some cases, death. The hepatitis C virus is twice as widespread as HIV with over 170 million victims worldwide and 5 million in the United States. ACHN expects to unveil the preliminary version of the drug in early 2014 and commence testing on people by the end of 2014. 

Hedge funds have recently been bullish with regards to ACHN, with four funds substantially increasing their holdings. Daniel Gold’s QVT Financial currently has the largest stake in the company, increasing its investments by 11% up to a total value of $56 million. Ra Capital Management has also increased its position by nearly 30% up to $21.5 million; it makes up over 7.5% of its entire 13-F portfolio. While these two hedge funds have both been bullish on ACHN, the largest increase in holdings from last quarter came from James Flynn’s Deerfield Management, which upped its stake in ACHN by 147% with a total value of just over $11 million. This bullish behavior from the smart money, combined with the unveiling of ACHN’s new drug, could make for a strong showing by the stock in the future. 

Today, a trader bought 10,000 ACHN Jan 2014 10-20 Call Spread for $1.30.  I jumped on a little later, but here it is:
 
My Trade: I bought the ACHN Jan 2014 10 Calls for $1.60
Risk: $160 per 1 lot
Reward: Unlimited
Breakeven: $11.60
 
Greeks of this Trade:
 
Delta: Long
Gamma: Long
Theta: Short
Vega: Long
No positions in stocks mentioned.