The Motley Fool preaches pragmatism to potential Achillion suitors...

This Biotech Stock Rose for All the Wrong Reasons
By Brian Orelli | More Articles
November 18, 2011

Achillion Pharmaceuticals (Nasdaq: ACHN ) might get bought, according to an article by Bloomberg. Shares jumped by as much as 17% today in response to the report, although it's pulled back a little since then.

And this is news because?

Achillion has three drugs in the clinic, which all treat hepatitis C, a disease that's quickly moving toward cocktail therapies as a standard of care. Pharmasset (Nasdaq: VRUS ) has separate partnerships with Johnson & Johnson (NYSE: JNJ ) and Bristol-Myers Squibb (NYSE: BMY ) to test its drug in combination with the big pharmas. Roche just bought Anadys Pharmaceuticals for its hepatitis C drug to be used in combination with its drugs and with drugs developed by Merck (NYSE: MRK ) , with which it has a partnership. Vertex Pharmaceuticals (Nasdaq: VRTX ) licensed compounds from Alios BioPharma. And the list goes on.

I'd expect Achillion to be talking with potential partners, and I'd expect that many of those companies would entertain the idea of purchasing the company at the right price.

What I don't expect is for a company's CEO to go blabbing to the media about it. There's just no reason for it.

And there's no reason for investors to jump onboard expecting that a sale is imminent. BioSante Pharmaceuticals' (Nasdaq: BPAX ) CEO made similar comments to the same news organization, causing its shares to spike in July, but shares have since fallen 40% from the high set that month.

Achillion expects to report interim phase 2 data by the end of the year for its lead compound ACH-1625. Most -- dare I say all -- potential buyers would want to see that data before making a purchase. And unless the purchase price was out of this world, Achillion's board would be crazy to agree to a sale with the data on the horizon. Assuming it's positive, the data will only make the company more valuable as a potential takeout target.

If you're going to purchase shares of Achillion, I'd consider looking for a pullback before jumping in. You might not get one -- sometimes rumors are true, and the phase 2 data will be available soon -- but I don't see how Achillion is more valuable after the Bloomberg report than it was yesterday.