Macro Tsimmis

intelligently hedged investment

Vertex (VRTX) update #8

Posted by intelledgement on Tue, 19 Feb 08

Vertex (VRTX) announced today the completion of their recent shelf registration offering. They sold 6.9MM shares of common stock (the original 6MM plus an over-allotment of 900M) at a price of $17.14/share (closing price on 12 February) plus $287.5MM in notes convertible to common at a price of $23.14/share. In combination, these offerings raised $406MM minus expenses and commissions.

While the dilution is bad for existing shareholders (and the stock price has retreated), the company has financed about a year’s worth of operations at the current burn rate. With the cash already in hand, this should last then through 2009 at least. Given that the telaprevir phase 3 test scheduled to start next month will not be completed until 2010, the company will probably need another round of funding to see it through approval by the FDA for treatment naive hepatitis C patients sometime in 2011, unless telaprevir is approved for the treatment of patients who have not responded to the standard of care (SOC) treatment (48 weeks of interferon plus ribaviron), based on the Prove 3 phase 2 trials. It is unlikely that the FDA would approve sale of a drug based on phase 2 results, but the unmet need of hepatitis C patients who have failed the current SOC is very compelling, so it could happen.

Of course, whether such limited label sales would generate enough revenue to avert the need for another round of funding remains to be seen.

In any event, if and when we need additional funding, there will be lots more data available concerning telaprevir’s effectiveness and if those data are strong, the share price should be considerably higher and fewer shares would need to be sold to fund 2010 and 2011 operations.

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