Investors started shedding Achillion shares early Wednesday, less than a day after the drugmaker announced a partnership with pharmaceutical giant Johnson & Johnson that snuffed out the prospect of a near-term acquisition.
Achillion and Johnson & Johnson’s Janssen Pharmaceutical Companies said Tuesday after markets closed that they would team up to develop and sell hepatitis C treatments, a lucrative product category for drugmakers already filled with newer blockbuster treatments like Sovaldi and Harvoni.
Achillion representatives said during a conference call that Johnson & Johnson will make a $225 million equity investment in their company, and Achillion is eligible for more than $900 million in milestone payments under the deal.
Shares of Achillion started falling in after-hours trading, likely in part because investors expected an acquisition, William Blair analyst Y. Katherine Xu said in a research note.
Achillion has no drugs on the market, but its stock more than tripled in value last year, as investors bought into the potential of its pipeline of products under development.
The Johnson & Johnson partnership increases the chances that Achillion will eventually have a product to market, Cowen and Co. analyst Phil Nadeau said in a separate note. But he added that, aside from eliminating the prospect of an acquisition, the deal offers little immediate return for shareholders. Most of the financial upside comes from future milestone and royalty payments.
However, Xu said the partnership makes “tremendous sense,” with Johnson & Johnson having the expertise and resources to broaden and accelerate product development globally. She raised her rating on Achillion stock to “Outperform” from “Market Perform.”
Shares of New Haven, Connecticut-based Achillion Pharmaceuticals Inc. were down more than 13 percent, or $1.42, to $9.26 in midday trading Wednesday, while broader indexes rose slightly.
