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WIKI ANALYSIS
Vertex Pharmaceuticals Incorporated (VRTX) is the 23rd largest biotechnology company in the world by revenue[1] and a forefront developer for telaprevir and Lexiva/Telzier, which are treatments for HCV and HIV. VRTX's assets in 2007 totals $601,477. Vertex's currently financial future is largely based on the financial outcome of telaprevir, a new drug for HCV that is commercialized in 2008. Based in the United States, VRTX has networks in the United Kingdom, Japan, and Belgium. VRTX derives revenues from royalties and net sales from collaborative agreements with GlaxoSmithKline, and Johnson & Johnson (JNJ), and Janssen, Merck and Avalon Pharmaceuticals (AVRX).[2]VRTX use these collaborations to balance risk and retains the potential for significant return in the form of downstream royalties, net income-sharing, and co-promotion rights.[3] VRTX accelerates its business strategy by focused on in-licensing deals and acquisition opportunities. In 2007, Lexiva generated the 3rd largest sales revenues among HIV protease inhibitors in the United States,excluding ritonavir, and holds an approximate 10% share of the United States HIV protease inhibitor market based on total prescriptions.
Company Overview
VRTX is a biotechnology company that researches, develops, and commercialize medicine for virual diseases, inflammation, autoimmune diseases, cancer, pain, and cystic fibrosis. It's current project is focused toward developing a treatment for HCV and HIV. HCV is a blood-borne infectious disease that is caused by hepatitis C virus, infecting the liver. HIV is lentivirus that causes the human immune system to fail and led to life-threatening infections.
Business Overview
Business
The majority of Vertex's revenue is generated from its royalties with collaborative companies. VRTX and Janssen collaborate to develope VX-950, a treatment for Hepatitis C. [4] Janssen paid VRTX an up-front payment of $165.0 million in July 2006 and milestone payments totalling up to $380.0 million if telaprevir is successfully launched. As of December 2007, $45.0 million has been received and Janssen will cover 50% of the production costs. [5] From its collaboration with Cystic Fibrosis Foundation Therapeutics Incorporated, VRTX is expected to receive $33.9 million by 2008 from CFFT on the development of VX-770 [6] and VX-809, both cystic fibrosis drugs that started development in 2004. Base on their agreement, VRTX will pay a royalty to CFFT on the net sales of any drugs discovered in the collaboration.[7] Also, since 1993, VRTX has received royalties from GlaxoSmithKline on the net sales of Agenerase, Lexiva, and Telzir. [8] VRTX pays Searle a royalty based on net sales of Lexiva/Telzir.[9] In addition, VRTX entered into a collaboration with Merck for the development of MK-0457 (VX-680). Since 2004, Merck has made an up-front payment of $20 million and $15.8 million in research funding. Among the $350 million ini milestone payments as agreed in the agreement, Merckhas made $64.8 million in milestone payments since 2005 and VRTX will receive royalties on product sales. [10] In June 2004, VRTX entered in a collaboration with Mitsubishi Tanabe for the development of Telaprevir in Asia. VRTX are entitled to receive $33 million in payments an possible royalties on sales of telaprevir in Mitsubishi Tanabe's territory. Further cost sharing beyond Phase 2 is still in neogociation. [11] In February 2005, VRTX partnered with ====Avalon Pharmaceuticals (AVRX) for the development and comercialization of IMPDH inhibitor AVN-944 (VX-944) for the treatment of cancer. Avalon has made %5.0 million in up-front license payment and furture royalties on product sales as well as milestone payments are expected. [12]
FIinancial Metrics & Business
Total assets reached its peak in 2006. VRTX sold $11.7 million worth of of Altus Pharmaceuticals (ALTU) common stock and warrants to buy Altus common stock for $18.3 million. The sales and warrants associated with Altus common stock resulted in a realized gain on a sale of investment of $11.2 million. Also, holders of 2011 Notes exchanged their notes for $4.1 million shares of newly issued common stock, resulting in a non-cash charge of $5.2 million.[14]
The drop in total assets in 2007. VRTX incur a net loss of $391.3 million, including $59.4 million in stock-base compensation expense. Operating costs, including research and development costs for Telaprevir and other drugs, contribute to the net loss. As of 2007, there is an excess of $2.2 billion in research and development costs. In addition, VRTX repaid the outstanding principal of $42.1 million and accrued interest on the 2007 Notes. Also, the holders of the outstanding 2011 Notes converted their stocks into common stock at $14.94 per share. Revenue is comprised of $48.0 million in royalties and $151.0 million in collaborative and other research development revenues. There is a 16%, or $6.8 million, rise in royalty revenue and 14%, or $24.1 million, drop in collaborative and research revenues. Royalty revenue was increased due to the worldwide net sales of Lexiva/Telzir and Agenerase. [15]
On Feb 11, 2008, Vertex's Executive Vice President and Chief Financial Officer stated "In 2008, Vertex expects to direct its investment towards the priority of the telaprevir registration program and development of telaprevir in the treatment-failure population. While investing in telaprevir, we are prudently managing the advancement of other earlier and mid-stage opportunities in the areas of HCV, cystic fibrosis [16] and immune-mediated diseases... we enter 2008 with more than $460 million in cash, and are engaging in a process that may result in the monetization of our HIV royalty stream and provide a further capital contribution to the company. with additional cash inflow from our R&D collaborations, including milestones, we believe we are well-positioned to support the progression of our business." VRTX predicts the full-year 2008 total revenue to be around $200 to$220 million, with R&D expense in the range of $490 to $520 million, and Sales, General, and Adminstrative Expense in the range of $110 to $120 million. [17]
Key Trends and Forces
Risk Factors
VRTX is expecting to continue incuring operating losses, potentially more than the $391.3 million net losses in 2007, due to significant investments in research and development of Telaprevir. Net losses can fluctuate [19] and can have an adverse effect on stockholers' equity, total assets, and working capital. Although current assets and liabilities are sufficient for operations in 2008, VRTX needs to raise funds to continue operation in 2009. Fund raising will be conducted through public offerings or private placements of its debt or equity securities. [20] Equity financings can result in dilution to our then existing seucirty holders and VRTZ's ability to pay interest and dividends will be limited. [21] VRTX financials depends on the commercial success of Telaprevir while simutaneously developing nine other drugs that are all still in early stages of development. Successful development and testing of these drugs are crucial to VRTX's financial future. Also, VRTX need to obtain approval from the United States and foreign regulatory officials in order to commercialize its drug candidates. [22]
An advancement in HCV treatment is desperately called for
There has been no new HCV drug since the introduction of alpha-interferon and ribavirin, and since the combo cause serious side effects, patients and physicians are calling for a new and better treatment. The market's acceptance of VRTX's Telaprevir will depend on its ability to curtail the usual treatment time of 52 weeks in half and achieve sustained virologic response, as Telaprevir claims to do. [23]There is strong interest in the market for new HCV drugs, but any errors on safety with Telaprevir will hurt consumer eager expectations and the company's assets. because VRTX is betting company assets on Telaprevir since it suspended collaboration and no long receives collaboration revenue with Merck in November 2007. [24]
Competition is heating up
In 2008, Abbott Laboratories, Merck, and Pfizer have also began trails for HCV protease inhibitors. If these projects are conducted in line with VRTX's projects, then VRTX's revenue would decrease in face of market competition with other brands.
Drop in HCV infections
During the last 20 years, the annual rate of new HCV infections has dropped 88% to 20,000. Thus, Telaprevir is facing a shrinking market and needs to encourage testing for a potentially temporarily dormant disease. As a result, VRTX may be facing a shrinking consumer demand for its HCV drug.
Competition
1. As of June 2008, Abbott Laboratories, Merck, and Pfizer in Phase I study for its HCV protease inhibitor. This increases the competition for VRXT as rivaling companies are racing for time and quality in placing a new drug for HCV on the market.
Vertex's collaborators include Abbott Laboratories, Merck, Pfizer, GlaxoSmithKline. [25]
Vertex is directly competing against companies such as Abbott Laboratories and Bristol-Myers Squibb. Vertex's market capitalization is relatively smaller but has partnership with top pharmasuetical companies. [26]
References
- ↑ List of biotechnology companies
- ↑ http://www.vpharm.com/home/Vertex-Profile.html
- ↑ http://www.vpharm.com/current-projects/strategic-alliances.html
- ↑ http://www.pharmpro.com/ShowPR~PUBCODE~021~ACCT~0000100~ISSUE~0608~RELTYPE~PR~ORIGRELTYPE~IN~PRODCODE~0000~PRODLETT~J.html Vertex and Janssen Form Collaboration to Develop and Commercialize VX-950 for Treatment of Hepatitis C]
- ↑ Vertex 10K
- ↑ Foundation and Vertex Announce Positive Early Results for VX-770
- ↑ Vertex 10K
- ↑ GlaxoSmithKline and Vertex Pharmaceuticals announce virologic and drug resistance results from protease inhibitor study
- ↑ Vertex 10K
- ↑ Vertex 10K
- ↑ Vertex 10K
- ↑ Vertex 10K
- ↑ Vertex 10K
- ↑ Vertex 10K
- ↑ Vertex 10K
- ↑ "Vertex Pharmaceuticals Highlights Cystic Fibrosis Program Targeting the CFTR Protein Responsible for Cystic Fibrosis"
- ↑ "Vertex Pharmaceuticals Reviews Clinical Advancements and Reports First Quarter 2008 Financial Results
- ↑ Vertex 10K
- ↑ Vertex 10K
- ↑ Vertex 10K
- ↑ Vertex 10K
- ↑ Vertex 10K
- ↑ Merriman Curhan Ford, October 30th, 2008
- ↑ MorningStar,2008
- ↑ Comparison:Vertex and its Collaborators
- ↑ [http://finance.yahoo.com/q/co?s=VRTX Comparisoin: Vertex and its direct competitors]
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