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19/02/2009
Vertex aims for $320m offering to push telaprevir to the finish

Vertex Pharmaceuticals Inc. is likely to have a big enough pot of cash to launch telaprevir for hepatitis C virus and to advance a potential treatment for cystic fibrosis, now that it has agreed to sell 10 million new shares.

The shares will be sold at a price of $32 each, bringing in $320 million before expenses, or $313.3 million after fees. Impressively, the shares are being offered at a discount of only 1.7 percent.


Vertex said it plans to use the proceeds for general purposes, including development and commercialization of telaprevir for hepatitis C virus (HCV) and VX-770, a drug candidate for the treatment of patients with cystic fibrosis (CF), according to a company prospectus filed with the Securities & Exchange Commission.


Analysts agreed that the added cash from the offering, set to close within days, should help the company through the anticipated 2011 launch of telaprevir, which currently is in Phase III trials.


The proceeds "should have [Vertex] fully funded to the point in 2011 when telaprevir launches," Thomas Russo, an analyst with Robert W. Baird & Co., told BioWorld Today. He noted that Vertex has done three capital raises in the past year, but now, he said it "looks like they're all set."


At a time when a company's financial position "trumps everything else" including the pipeline, Russo said, Vertex's "balance sheet is now sufficiently bolstered to get to the commercial stage and to positive cash flows."


"The offering removes funding risk ahead of telaprevir approval in 2011," Piper Jaffray analyst Edward Tenthoff wrote in a research note. He added, "We anticipate Vertex will use the strengthened balance sheet to build a domestic HCV sales force and/or potentially acquire synergistic HCV drugs."


Cambridge, Mass.-based Vertex intends to file a new drug application for telaprevir in the U.S. in the second half of 2010, if all goes well with the ongoing Phase III trials. The company also expects to begin three registrational studies in the first half of this year for VX-770, its CF drug candidate for patients with the G551D mutation in the gene responsible for the disease.


Merrill Lynch & Co. is acting as the sole book-runner, with Cowen and Co. acting as co-manager for the offering. The new shares will be ready for delivery on or about Feb. 24, the company said.


The $32 share price of the stock offering is not much more than the $32.56 closing price Wednesday, representing only "a minimal discount" of 1.7 percent to the close, Tenthoff wrote. The offering, he said, will give Vertex an estimated $1.1 billion in pro forma cash. With an annual projected cash burn of $400 million to $435 million, Vertex will end 2009 with about more than $700 million, according to Tenthoff's figures.


Ian Smith, chief financial officer at Vertex, told BioWorld Today that the "tight pricing" of the offering so close to the stock price is "an indicator of the demand for the Vertex stock, and we're very proud of that."


Affirming that, shares of Vertex (NASDAQ:VRTX) gained $1.14 Thursday to close at $33.70.


Vertex had about 151 million shares of common stock outstanding as of Dec. 31, 2008, and after this offering, it will have about 161 million shares outstanding.


Russo, the analyst at Baird, called Vertex an "attractive story" and said that more and more shareholders are looking to invest. The company is in one of the hottest areas in drug development with telaprevir for HCV, he said.


And although there are numerous oral drugs in development for HCV, he said that telaprevir may offer two key advantages over another Phase III HCV candidate, boceprevir by Schering-Plough Corp.


While both products, known as protease inhibitors, appear to have similar efficacy in patients who have never been treated before, the Vertex product has been shown to cut the treatment duration in half, from 48 to 24 weeks. In addition, Russo said, telaprevir also is the only drug candidate so far that has been shown to be effective in patients who have failed a prior course of treatment.


The currently marketed standard treatments for HCV are pegylated interferon (Roche's Pegasus and Schering's PegIntron) and ribavirin, a combination of those two products. Telaprevir is expected to be used alongside the approved standard treatments.


However, the current standard treatments are not well tolerated and the hope is that eventually a different class of oral HCV drugs, such as polymerase inhibitors, could be combined with a drug like Vertex's product, Russo explained. One of the leading polymerase inhibitors in development is R7126 by Pharmasset Inc. and Roche, he said. In addition, a recent study involving an InterMune Inc.-Roche drug candidate combined two oral HCV drugs.


By Catherine Hollingsworth




Source: BioWorld