What happened

Shares of Achillion Pharmaceuticals (NASDAQ:ACHN) are rallying more than 15% at 1:30 p.m. EDT Thursday after analysts at Leerink slapped a $6 price target on the stock, citing attractive potential rewards associated with the company’s collaboration deal with Johnson & Johnson (NYSE:JNJ).

So what

As a refresher, Achillion Pharmaceuticals licensed its hepatitis C drug pipeline to J&J in 2015, and ever since, J&J has been responsible for managing the two companies’ research into a next-generation hepatitis C therapy that could reduce treatment duration while delivering near-100% functional cure rates.

Scientist work together in a lab on next generation medicines.

In April, J&J reported data from a phase 2 combination drug trial that includes Achllion’s odalisvir. Unfortunately, those results failed to spark investor optimism. The data showed that a three-drug combination that includes Achillion’s odalisvir missed its mark in genotype 3 patients, a historically hard-to-treat subset of hepatitis C patients.

The data did show, however, that the three-drug approach delivered 100% cure rates in genotype 1 patients without cirrhosis after six or eight weeks of therapy.  

However, the genotype 1 market is crowded, with Gilead Sciences, AbbVie, and Merck all fighting for market share. Competition has caused prices for genotype 1 drugs to fall, shrinking the market opportunity for the indication. 

Yet Leerink thinks Achillion shares could offer attractive an risk-reward proposition at current prices, especially since results from a phase 2b study involving odalisvir are on deck for later this year. 

Now what

There’s an important need for shorter-duration hepatitis C treatments, but six-week treatment regimens are already available to many genotype 1 patients, and more options could become available to these patients soon. Gilead Sciences’ Harvoni is already used in about 40% of genotype 1 patients for six weeks, and the FDA is reviewing a new treatment from AbbVie that delivered high cure rates in as little as six weeks, too.

J&J’s got the marketing muscle necessary to elbow for room in this indication, and if trials convince regulators to give it a green light, Achillion stands to benefit handsomely from milestones and royalties. However, there’s a tremendous amount of risk here, and most investors are probably best off focusing on other intriguing investment ideas.

Todd Campbell owns shares of GILD. His clients may have positions in the companies mentioned. The Motley Fool owns shares of and recommends GILD and Johnson & Johnson. The Motley Fool has the following options: short June 2017 $70 calls on GILD. The Motley Fool has a disclosure policy.

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