Achillion Pharmaceuticals (NASDAQGS:ACHN) is up 27% in trading today after announcing promising results from intermediate drug trials for a possible treatment for hepatitis C came back with very promising results: all twelve patients were still clear of the virus twelve weeks after the treatment (a standard called SVR12).

Achillion Pharmaceuticals Jumps Following New Clinical Results

“The antiviral activity and safety profile observed to date for ACH-3422 both in preclinical studies and in the ongoing 422-001 Phase 1 trial support further development with this nucleotide in combination with Achillion’s other direct-acting antivirals, and represents an exciting treatment option for HCV,” said lead investigator in the ACH-3422 Phase 1 proof-of-concept study and Phase 2 proxy study of ACH-3102 and sofosbuvir, Edward Gane, M.D in the press release.

Achillion Pharmaceuticals’ clinical trial results offer clarity to a complicated process

It’s easy to understand why investors are excited, Achillion Pharmaceuticals (NASDAQGS:ACHN) is trying to find an alternative to existing hepatitis C treatments that typically include the interferon or ribavirin, both of which can be very hard on patients, and today’s news is a sign that they may be on the right track. Since most investors don’t really have the resources or the expertise to evaluate a pharmaceutical company’s medical claims, such clear results make it that much more likely that Achillion will manage to bring some of the drug’s in its pipeline to market and start making money.

The risk of investing in R&D

But Achillion Pharmaceuticals (NASDAQGS:ACHN) is also a great example of why it’s so easy for investors to go wrong in the pharma sector. If you look back at Achillion’s financials, they’re pretty abysmal. Net losses have grown from $25 million in 2010 to $59 million last year, mostly because of R&D spending, though administrative costs have also gone way up over that period. Loss per share has actually gone down for the last three years because so many new shares have been issued: the total float has jumped from 58 million shares in 2010 to just under 97 million at the end of last year.

A company with mounting losses and no product on the market that funds itself with new offerings that will dilute any current stockholders eventual profits isn’t exactly attractive from a value perspective. That’s not to say a company like Achillion Pharmaceuticals (NASDAQGS:ACHN) that’s still developing new treatments can’t be a good investment, but the whole thing rests on one of its drugs being a big success since there’s nothing underlying to fall back on.