Why Did Shares Of Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN) Plunge 9%?

Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN)

What caused shares of Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN) to tank nearly 9% on Friday? The stock movement may be linked to a recent securities filing in which the company gave a notice of a plan to raise additional cash through the sale of new securities.

In a filing with the US Securities and Exchange Commission (SEC), Achillion informed the regulator of its intent to raise up to $250 million by securities offering. But it didn’t specify the nature, timing or pricing of the securities fundraiser. However, the market seems to believe the company is planning to dilute its stock, which could destroy value for existing shareholders. That may have sparked the selloff in the stock, which sent the shares down almost 9% on Friday to settle at $3.86.

Shares of Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN) have retreated 6% year-to-date and are down more than 47% over the last one year.

Beating earnings

Before the issue of planned securities offering appeared to spoil the party, investors recently warmed up to shares of Achillion following the company’s a little upbeat 4Q2016 earnings. The company posted EPS loss of $0.03, better than EPS loss of $0.20 that analysts were expecting on the average. However, revenue of $15 million declined 52.5% year-over-year.

Though 4Q2016 may not have been the primary reason for investor optimism in Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN), the results offered hope of a bright future as the company continues to develop its pipeline. Additionally, several rating firms have recently commented positively on the prospects of Achillion.

For instance, Ladenburg Thalmann analysts initiated their coverage of Achillion with a BUY rating and 12-month price target of $10 on February 2. The analysts cited the company’s pipeline programs, and the various milestones and royalties bearing collaboration the company has with partners such as Johnson & Johnson (NYSE:JNJ)’s Janssen.

$900 million in potential milestones

The collaboration with Janssen involves development of a HCV drug and could yield more than $900 million in milestones for Achillion, and earn the company royalties in the range of mid-20%.

However, HCV is a highly competitive space and there can be no guarantee that Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN) will hit the milestones and unlock the promised payments. The company’s planned securities fundraising could be a measure to raise additional funds that can be used to develop the pipeline so that the company doesn’t fall behind the competition in HCV and other product categories.

2/24/2017
Ticker Symbol ACHN
Last Price a/o, 4:02PM EST  $                       3.86
Average Volume (mlns) 1.57
Market Cap (mlns)  $                   579.50
Sales (mlns) $31.60
Shares Outstanding (mlns) 150.13
Share Float (mlns) 118.17
Shortable Yes
Optionable Yes
Inside Ownership 0.10%
Short Float 9.03%
Short Interest Ratio 6.8
Quarterly Return -8.31%
YTD Return -6.54%
Year Return -43.65%

I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 96 hours. All information, or data, is provided with no guarantees of accuracy.

About the author: Monica Gray has an undergraduate degree in Accounting and an MBA – earned with Honors. She has six years of experience in the financial markets and has been a securities analyst for the past two years.