The FDA just warned that two popular hepatitis treatments from AbbVie, Inc. (ABBV) could cause serious liver injuries in patients with underlying advanced liver disease.
“Patients taking these medicines should contact their health care professional immediately if they develop fatigue, weakness, loss of appetite, nausea and vomiting, yellow eyes or skin, or light-colored stools, as these may be signs of liver injury,” they noted.
Ten patients have already died or required transplant.
Another 16 had some form of liver dysfunction, forcing the FDA to demand stronger label warnings for Viekira Pak and Technivie.
Panicked investors sent the stock to 18-month lows on the news.
But they weren’t paying attention. Instead, as we typically see, they overreacted.
Overreactions Lead to Opportunity
We see it happen all the time.
Investors panic, creating the buy opportunities in the hepatitis C sector where 3.9 million Americans suffer from the virus… and another three out of every four baby boomers have it, and don’t even know…
Take for example, Achillion Pharmaceuticals (ACHN).
When we first recommended the opportunity (Dec 2013 at $2.92), Achillion traded under $3 – 57% off its highs.
The FDA had just delivered a blow to the stock after upholding a clinical hold because of abnormal liver results in patients.
It left the company scrambling to remove the hold and move forward.
Investors overreacted, panic selling the stock… sending it to new lows.
No one wanted to touch the stock. The press warned investors to stay away.
But the move created the buying opportunity of a lifetime, as patient investors learned.
By the time the FDA lifted its ban on two of its experimental hepatitis C treatments, shares soared as high as $16.87 for potential gains of 478% a year later.
Panicked investors missed out… just as they are now with AbbVie Inc.
To be clear, we’re not recommending a buy on the stock today.
But I want you to understand how severe overreactions can lead to significant profit opportunities that we saw with Achillion.
When it comes to AbbVie, we have to consider the two hepatitis drugs were not recommended – or ever – approved for hepatitis C patients with underlying advanced liver disease, such as cirrhosis of the liver.
Physicians were never to prescribe these medications to those with advanced issues.
It seems they did any way…
And even if the new FDA warning labels were to hit sales, these two drugs account for less than 8% of the company’s total revenue stream. For investors to wipe out more than $10 million in value in a single day is more than an overreaction.
Also, we must consider that these 26 cases of liver injury were deemed “possibly” related to the two drugs. “Possibly” damaged the stock.
Overreactions happen all the time. The key to profiting is ignoring the noise as ACHN investors did and saw their investment move up almost 5 times over the next year. We’ll see many more down the road… allowing us to pick up damaged, cheap stocks along the way.