Macro Tsimmis

intelligently hedged investment

Posts Tagged ‘VRTX’

Vertex (VRTX) update #29

Posted by intelledgement on Wed, 05 Aug 09

Vertex Pharmaceuticals (VRTX), our biopharma spec play with the killer hepatitis C drug candidate, announced their 2Q09 results today. Thanks to a spate of one-time expenses relating to the retirement of founder and CEO Joshua Boger, the note exchange, and a restructuring charge, losses nearly doubled to $171 million compared to $91 million in 2Q08. The company ended 2Q09 with $754 million in their coffers, and are anticipating collecting $105 million more due to a restructuring of their agreement with Mitsubishi Tanabe Pharma—who have the distribution rights for telaprevir in Asia Pacific (sans Australia)—announced last week.

Phase 3 trials of telaprevir proceed apace; we are on track for a second-half 2010 application by Vertex to the FDA for USA approval (about a year later than we originally projected when we made bought VRTX stock, but such is to be expected when speculating in biotechs). For more details, check out the press release.

Previous VRTX-related posts:

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Vertex (VRTX) update #28

Posted by intelledgement on Sun, 12 Jul 09

Yay!

Vertex Pharmaceuticals (VRTX) have come up with a cash-raising mechanism that does not require the dilution of all existing shares: they are selling their rights to receive $250 million in milestone payments from Janssen Pharmaceutica N.V., a Johnson & Johnson (JNJ) company, for the successful development and launch of their hepatitis C drug, telaprevir, in the European Union. Shareholders reeling from a succession of dilutive secondaries and other transactions—seven million shares sold in Feb 08, nine million shares sold in Sep 08, ten million shares sold in Feb 09, ten million shares issued to the owners of ViroChem Pharma in Mar 09 to acquire that company, seven million shares exhanged with bondholders to retire convertible notes due 2013 in Jun 09—were presumably happy to see the company raise funds without issuing any new shares for once.

According to the press release, “Morgan Stanley is acting as a structural advisor to Vertex in connection with this transaction.”

Previous VRTX-related posts:

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Vertex (VRTX) update #26

Posted by intelledgement on Thu, 16 Apr 09

Our development-stage biotech company, Vertex Pharmaceutical (VRTX), announced their 1Q09 results today: the company lost $161.5 million, or $1.04 per share compared to a net loss for 1Q08 of $96.2 million, or $0.72 per share. According to the press release, the increased red ink “was principally attributable to a decrease in collaborative revenues and an increase in total operating expenses to support telaprevir’s global Phase 3 registration program and commercialization, and preparation for advancement of VX-770 [the anti-cystic fibrosis drug that is due to start a Phase 3 trial later this quarter] into a registration program.”

The company ended the quarter with $869.2 million in cash, so at least we have something to show for all the dilution we have endured. The money will come in handy as management now project a loss of $500-to-$535 million for all of 2009. And we still have to get through 2010—Phase 3 trial results for telaprevir are expected mid-2010—and probably into 2011 before an FDA approval could occur and serious revenue (and black ink) starts to flow…so more dilution in 2010 is likely.

In addition to the ongoing Phase 3 trials, management expect completion of a Phase 2 study examining the effectiveness of telaprevir with a two-dose-per-day regimen by the end of 2009. The Phase 3 trials utilize three-doses-day, and it would obviously be better if patients could achieve comparable results on a two-dose regimen.

Previous VRTX-related posts:

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Vertex (VRTX) update #25

Posted by intelledgement on Tue, 03 Mar 09

Another month, another ten million shares of dilution. This time, however, shareholders are actually getting something tangible: two new drugs!

Our development stage biotech company, Vertex Pharmaceuticals (VRTX), today announced an agreement to acquire privately-held ViroChem Pharma Inc. in a stock and cash transaction: ViroChem shareholders will receive $100 million in cash and between 9.9 million and 11 million shares of VRTX, depending on the average share price prior to the close of the deal. Vertex gets worldwide rights to ViroChem’s HCV drug development portfolio, including VCH-222 and VCH-759, “which have demonstrated substantial reductions in plasma HCV RNA when dosed as single agents and have been well-tolerated in clinical studies to date,” according to today’s press release.

Vertex expects to begin testing combinations of their own HCV protease inhibitor, telaprevir, with the ViroChem drugs in the second half of 2009…some of these will be conducted in conjunction with the current standard of care (SOC) regimen—pegylated interferon and ribavirin—and some without, raising the prospect that Vertex may eventually be able to offer shorter, less odious Hepatitis C treatments that totally replace the current SOC, which debilitates most patients for a year and then only works for about half of them.

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Vertex (VRTX) update #24

Posted by intelledgement on Wed, 18 Feb 09

Our speculative biotech developer, Vertex Pharaceuticals (VRTX), today announced a surprise secondary offering of ten million shares priced at $32/share. The move was unexpected, in view of the company’s $832 million cash position as of 4Q08. Vertex conducted two secondary offerings in 2008, including one for $288 million in notes and $113 million in stock last February, and one for $217 million in stock just last September.

Our projections—which included what we felt to be a conservative 10% projection for annual dilution through the first profitable year of 2011—forsaw 160 million shares to be outstanding as of the end of 2009…but here we are in February looking at 183 million, which is running at a 17.5% level of dilution (since 2007 when 132 million shares were outstanding). Our model projects a price/sales ratio of 9 for VRTX in 2014, presuming sales of telaprevir ensue in 2011. At a rate of 10% annual dilution, our market valuation projection gave us a stock price of $161 in 2014 which, discounted 25% per year, meant we could reasonably expect VRTX to be at $38 by the end of 2009. However, at a rate of 17.5% annual dilution (dropping to 5% dilution after the company goes into the black), the 2014 value drops to $124…which yields a fair end-2009 value of $29.

If we presume that there will be no more secondaries in 2009—hopefully, with the company having $1B in cash, that should be a reasonable presumption—and that the dilution in 2010 will not exceed 10%, then we have a 2014 target of $148 and an end-2009 fair value of $35 (here is a revised price projections spreadsheet). The price is around $32 here, so we are getting close to the edge on this play. If the projected ROI declines further from here, we will have to cash in our chips.

Previous VRTX-related posts:

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Vertex (VRTX) update #23

Posted by intelledgement on Mon, 09 Feb 09

Our biotech play, Vertex Pharmaceuticals (VRTX), announced their 4Q08 and full 2008 results today, and provided guidance for 2009. Excluding stock-based compensation and restructuring and other non-recurring charges and gains, the company lost $397.5 million, or $2.83 per share in 2008, compared to a loss of $324.8 million, or $2.52 per share, for 2007. The increased loss is largely attributable to decreased total revenues, an increase in total operating costs and expenses to support telaprevir’s global Phase 3 registration program and commercialization, and a reduction in net interest income. In 2009, the company expects a loss in the range of $400-to-$435 million, excluding restructuring charges and stock-based compensation expense.

Results from two of the three Phase 3 currently-underway trials of telaprevir, the company’s Hepatitis C drug, are due by mid-2010. Those trials involve treatment-naive patients while the third study focuses on patients who have failed to respond to the current standard of care treatment; results from that study are expected in the latter half of 2010. Phase 2 results obtained in 2008 indicate that treatment with telaprevir in combination with the current SOC regimen improves the cure rate from 40%-to-50% achievable with the current SOC to around 70% while potentially decreasing the course of treatment from 48 weeks to 24—important because the treatment is debilitating and more patients are likely to complete a 24-week course than would tolerate 48 weeks. Also ongoing in Europe in conjunction with partner Tibotec is a Phase 2 study testing twice-daily telaprevir dosing (the USA Phase 3 trials are all based on thrice-daily dosing regimens).

The company also expects to begin Phase 3 trials of their cystic fibrosis CFTR potentiator compound by mid-2009. Phase 2 results last year were promising, but the market here is limited—there are 30,000 cystic fibrosis patients in the USA and this Phase 3 trial is focused on those who carry the G551D mutation, present in approximately 4% of patients.

Previous VRTX-related posts:

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Vertex (VRTX) update #22

Posted by intelledgement on Thu, 05 Feb 09

The founder of our biotech speculative play Vertex Pharmaceuticals, Joshua Boger, is stepping down as president, and plans to retire from day-to-day management in three months, the company announced today.

“I founded Vertex in 1989 with a vision to pursue a new approach in drug discovery and develop medicines that would fundamentally change the treatment of serious diseases. I am very proud of what Vertex has accomplished, and we now stand on the cusp of great clinical and medical success,” Boger stated.

Vertex’s board elevated one of their own, Matthew Emmens, a director since 2004, to replace Boger. Emmens was appointed president, and will take over from Boger as CEO and board chairman in May. Emmens previously served as CEO of Astra Merck, Inc., and of Shire plc where he continues as chairman of the board.

“It is a great privilege to be asked to lead Vertex at this important time in the company’s evolution,” stated Emmens. “I look forward to working with Joshua to enable a smooth transition as the Company prepares for its next stage of growth, and the commercial launch of important medicines for serious diseases. We have a rare opportunity to create a world class commercial enterprise that complements Vertex’s excellence in R&D innovation. In the area of hepatitis C, and also in cystic fibrosis, Vertex has the potential to transform patients’ lives and build tremendous value, and together with the employees my goal is to make this vision a reality.”

Previous VRTX-related posts:

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Dec 08 Intelledgement Speculative Opportunity Portfolio Report

Posted by intelledgement on Tue, 13 Jan 09

Position Purchased Shares Paid Cost Now Value Change YTD ROI CAGR
VRTX 18-Apr-07 57 31.65 1,812.05 30.38 1,731.66 23.55% 30.78% -4.44% -2.63%
NBIX 22-May-07 158 11.33 1,798.14 3.20 505.60 2.89% -29.52% -71.88% -54.47%
GSS 19-Jul-07 451 4.19 1,897.69 1.00 329.23 36.99% -68.35% -76.23% -62.78%
GSS 24-Aug-07 613 3.08 1,896.04 1.00 447.49 36.99% -68.35% -67.67% -56.53%
BBY 19-Sep-08 -58 41.49 -2,398.42 28.11 -1,638.50 35.73% -46.61% 31.68% 165.39%
MA 19-Sep-08 -11 225.18 -2,468.98 142.93 -1,573.88 -1.70% -33.58% 36.25% 199.51%
WMT 19-Sep-08 -40 59.70 -2,380.00 54.77 -2,200.32 -1.99% 15.23% 7.55% 29.45%
CAB 19-Sep-08 170 14.08 2,401.60 5.83 991.10 -6.72% -61.31% -58.73% -95.67%
APWR 18-Dec-08 422 6.14 2,599.08 4.30 1,814.60 n/a -67.79% -30.18% 100.00%
SOHU 18-Dec-08 58 45.13 2,625.54 47.34 2,745.72 n/a -13.17% 4.58% 251.66%
cash -189.22 19,669.50
ISOP 03-Jan-07 10,000.00 24,923.44 -2.21% 14.09% 149.23% 58.12%
Global HF 03-Jan-07 10,000.00 9,340.35 0.74% -15.95% -6.60% -3.37%
NASDAQ 03-Jan-07 2,415.29 1,577.03 2.70% -40.54 -34.71% -19.25%

Position = symbol of the security for each position
Purchased = date position acquired (for long positions) or sold (for short positions)
Shares = number of shares long or short in the portfolio
Paid = price per share
Cost = what portfolio paid (including commission); note for short sales, the portfolio gains cash
Now = price per share as of the date of the report
Value = what it is worth as of the date of the report (# shrs multiplied by price per share plus—or minus for short positions—the value of dividends)
Change = Change since last report (not applicable for positions new since last report)
Year-to-Date = Change since 31 Dec 07
Return on Investment = on a percentage basis, the performance of this security since purchase
Compounded Annual Growth Rate = annualized ROI for this position since purchase (to help compare apples to apples)

Notes: The benchmark for the ISOP is the Greenwich Alternative Investments Global Hedge Fund Index, which historically (1988 to 2008 inclusively) provides a CAGR of around 13.4%. For comparison’s sake, we also show the NASDAQ index, which over the same time frame has yielded a CAGR of around 9.6%. Note that for the portfolio, dividends are added back into the value of the pertinent security—or subtracted from the value of short positions—and not included in the “cash” total (this gives a more complete picture of the ROI for dividend-paying securities). Also, the “Cost” figures include a standard $8 commission and there is a 1% rate of interest on the listed cash balance.

Transactions: The market calmed down considerably in December, and—following three consecutive months of unmitigated disaster—closed up. With the immediate risk of a financial meltdown reduced and the probability of a post-election “Obtimism” rally increasing, we liquidated our four financials sector shorts as well as our real estate short.

News:

Comments: To quote our IMSIP 4Q08 report, “Let’s hope for the best. The incumbent crew was most definitely leading us deeper into the morass; the new crew recognizes we are in a big hole…perhaps they will be smart and brave enough to stop digging. We subscribe to the injunction to make love, not war, but we still believe in being prepared for both.” Accordingly, while we do not believe it is likely we can avoid a crash, it does appear likely that the herculean efforts of the powers-that-be to paper over the cracks in the system are taking hold (for now) and that, combined with optimism that the new regime might work miracles is likely to buoy markets in the short-to-medium term. This we are still short retailers—because we don’t believe the American consumer has any spare cash or credit to spend—but have covered our financial sector and real estate sector shorts for now. Plus in congruence with our long-term belief in the prospects of China, we have filled a gap in the port with two Chinese-market acquisitions.

At the end of the month, we were -2%, the hedgies were +1%, and the NASDAQ was +3%. For 2008 overall, we were +14% while the hedgies lost 16% but still handily beat the NASDAQ, which was -41% (worst year ever!). Overall after two years since inception, the ISOP is now +149% compared with -7% for the hedgies and -35% for the NASDAQ. Please note we generally consider the purchase of individual stock equities to be speculation, rather than investment, because of the high risk associated with owning a particular stock…and we recommend that the ratio of funds under management be about 10:1 in favor of investment over speculation—which is why this speculative portfolio started with $10,000 while our Intelledgement Macro Strategy Investment Portfolio started with $100,000 back at the beginning of 2007. (Of course, speculative risk can be mitigated by owning large numbers of stocks; this is why we recommend investing in exchange-traded funds, which typically do just that.) While this order of volatility is not unusual for speculative positions, the ROI we have attained here is unrealistically high. Over 40% of our net profits after two years still derive from trading one stock and associated options—DNDN—in the first few months of 2007. So, we’ve been lucky and good so far…but it could just as easily go the other way in 2009-10.

While there was lots of macro news—mostly desperate (and ill-considered) attempts by the government to fend off immediate collapse, it was a quiet month for our stocks. Our gold miner Golden Star (GSS) was up big (+37%) mostly on a rebound in the price of gold and possibly also on an unusual lack of bad company-specific news. Vertex (VRTX) recovered nicely (+24%) from last month’s overblown concerns that the new Obama administration would be anti-biotech. Neurocrine Biosciences (NBIX), our other biotech stock, was up 3%. Of our four retailers, two were flat (Mastercard/MA and Walmart/WMT) while Cabelas (CAB) which we are long was down 7% and Best Buy (BBY) which we are short was up 36%. And despite the fact that the price of oil declined in December by 18%, our double inverse oil ETF (DUG)—instead of being up 36% as we might have expected—was down another 20%. Clearly something is wrong there. Finally, our Chinese newcomers were a mixed bag: Sohu.com (SOHU) was up 5%, but A-Power (APWR) was blown down 30% on revised guidance.

The risk of a serious downturn remains but appears to be less immediate, and consequently we reduced our short positions. Unfortunately, it still appears that the new administration is angling to establish continuity with the old one with respect to the policy of material intervention in the market to prop up insolvent “too-big-to-fail” enterprises. While we feel these policies are long-term disastrous, there is some “upside risk” should the collective wisdom of the market come to think otherwise. Generally, new political leaders get some benefit of the doubt. So we will be prepared for a “melt-up” as well. With systemic risk on the loose, the variation in plausible valuations for almost anything is very wide and consequently the risk of volatility—which reached record levels in 2008—remains high.

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Nov 08 Intelledgement Speculative Opportunity Portfolio Report

Posted by intelledgement on Wed, 10 Dec 08

Position Purchased Shares Paid Cost Now Value Change YTD ROI CAGR
VRTX 18-Apr-07 57 31.65 1,812.05 24.59 1,401.63 -6.18% 5.85% -22.65% -14.70%
NBIX 22-May-07 158 11.33 1,798.14 3.11 491.38 -24.70% -31.50% -72.67% -57.35%
GSS 19-Jul-07 451 4.19 1,897.69 0.73 329.23 -17.05% -76.90% -82.65% -72.33%
GSS 24-Aug-07 613 3.08 1,896.04 0.73 447.49 -17.05% -76.90% -76.40% -68.07%
BZH 24-Mar-08 -214 10.99 -2,343.86 1.81 -387.34 -20.61% -95.61% 83.47% 143.57%
BAC 8-Sep-08 -69 34.73 -2,388.37 16.25 -1,121.25 -32.77% -60.62% 53.05% 581.57%
GS 8-Sep-08 -14 169.73 -2,368.22 78.99 -1,110.76 -14.61% -63.27% 53.10% 582.44%
HBC 8-Sep-08 -30 79.11 -2,365.30 54.37 -1,658.10 -7.85% -35.05% 29.90% 225.29%
DUG 10-Sep-08 56 42.83 2,406.48 30.40 1,814.51 -17.95% -15.51% -24.60% -72.89%
BBY 19-Sep-08 -58 41.49 -2,398.42 20.71 -1,209.30 -22.95% -60.66% 49.58% 717.44%
MA 19-Sep-08 -11 225.18 -2,468.98 145.40 -1,601.05 -1.64% -32.43% 35.15% 381.54%
WMT 19-Sep-08 -40 59.70 -2,380.00 55.88 -2,235.20 0.13% 17.57% 6.08% 36.09%
CAB 19-Sep-08 170 14.08 2,401.60 6.25 1,062.50 -21.38% -58.53% -55.76% -98.58%
WFC 09-Oct-08 -73 33.06 -2,405.38 28.89 -2,133.79 -15.15% -2.89% 11.29% 118.47%
cash 16,906.53 31,396.20
ISOP 03-Jan-07 10,000.00 25,486.15 2.70% 16.67% 154.86% 63.50%
Global HF 03-Jan-07 10,000.00 9,271.73 -1.67% -16.57% -7.28% -3.90%
NASDAQ 03-Jan-07 2,415.29 1,535.57 -10.77% -42.10% -36.42% -21.18%

Position = symbol of the security for each position
Purchased = date position acquired (for long positions) or sold (for short positions)
Shares = number of shares long or short in the portfolio
Paid = price per share
Cost = what portfolio paid (including commission); note for short sales, the portfolio gains cash
Now = price per share as of the date of the report
Value = what it is worth as of the date of the report (# shrs multiplied by price per share plus—or minus for short positions—the value of dividends)
Change = Change since last report (not applicable for positions new since last report)
Year-to-Date = Change since 31 Dec 07
Return on Investment = on a percentage basis, the performance of this security since purchase
Compounded Annual Growth Rate = annualized ROI for this position since purchase (to help compare apples to apples)

Notes: The benchmark for the ISOP is the Greenwich Alternative Investments Global Hedge Fund Index, which historically (1988 to 2007 inclusively) provides a CAGR of around 15.1%. For comparison’s sake, we also show the NASDAQ index, which over the same time frame has yielded a CAGR of around 10.1%. Note that for the portfolio, dividends are added back into the value of the pertinent security—or subtracted from the value of short positions—and not included in the “cash” total (this gives a more complete picture of the ROI for dividend-paying securities). Also, the “Cost” figures include a standard $8 commission and there is a 2% rate of interest on the listed cash balance.

Transactions: Another crazy month in which the ISOP was a haven of sanity. Volatility was extremely high—seven trading sessions in which the NASDAQ finished up or down between 5% and 7%—but it was a bit less wild than October (when there were two days the market moved 10% or more and a third day it moved 9%). Meanwhile we stood pat…hmmm…perhaps when everyone around you is frenetically dashing about like a chicken with it’s head cut off, standing pat is no longer a reliable indication of sanity.

  • 5 Nov—paid out WFC dividend of $0.34/shr
  • 19 Nov—paid out HBC dividend of $0.90/shr

News:

Comments: If anyone was still thinking that “change we can believe in” would be any different from frontrunning for the-powers-that-be, it only took Barack Obama 20 days to put that concern to rest. The appointment of Timothy Geithner—one of the architects of the bailout under Bush aegis—is a clear signal. The import is that the new administration will be working just as assiduously as the old one—di rigueur objections from right-wing zealots that the agenda is focused on promoting socialist/statist solutions notwithstanding—to commit taxpayer money in support of the cabal of financial services leaches who crashed the system. Instead of cutting those bad boys loose and blaming the consequent chaos on W—which would have meant taking a lot of immediate pain, but also purged of the poison, a swift and healthy recovery by the economy—the Obama folks have evidently decided to take the path of least resistance and continue the policies of papering over the cracks in the walls. We can look forward to more easy credit, more bailouts of “too-big-to-fail” companies, more Keynesian stimulus, and—if this “works”—a Potemkin-village “recovery” just in time to support Democrats in the 2010 election.

Although the odds are improving, it is still not clear if the man behind the curtain can pull off the illusion that all is well again here or not. Reflecting the consequent uncertainty, the level of volatility this month was again—as in October—extremely high: an average daily change of ±3.8% as compared with the normal index change (up or down) an average of about 0.5% each day.

At the end of the month, we were +3%, the hedgies were -2%, and the NASDAQ was -11%. Another great month for the good guys! Overall after 23 months of operations, the ISOP is now +155% compared with -7% for the hedgies and -36% for the NASDAQ.

It was another heavy news month. Of our four retailers, two were flat and two were down big. Unfortunately, while we are short three of the four, the one we are long, CAB, was one of the ones down big (-21%) after reporting good 3Q08 results but providing very guarded guidance going forward. We still think CAB will shine for us in the long run. BBY was down 23%, MA was down 2%, and WMT was +0.13%, the only stock in the port to be up on the month. All four of our financial services shorts obligingly tanked: BAC -33%, GS and WFC each -15%, and HBC -8%. We did have a pang of regret over WFC’s victory over Citigroup (C) in the bidding to acquire Wachovia (WB) last month; had C won the bid, we most likely would have shorted their stock instead (we had previously been short WB) and they were down 39% this month. Actually, they were down 72% on 21 November before being bailed out by Treasury in yet another egregious misappropriation of taxpayer money. The next day—as referenced above—the Fed committed another $800 billion to bail out Fannie (FNM) and Freddie (FRE).

None of our other long positions had a good month. Golden Star (GSS) reported their worst-ever gold production costs and our patience with management is growing very thin; the stock was down another 17%. Neurocrine Biosciences (NBIX) tried making no news and that worked even less well, with their stock down 24%. We still think we need to give their GnRH antagonist candidate drug for fighting endometriosis, elagolix, more time. Vertex (VRTX) went to the other extreme of issuing good news—fresh positive results for their telaprevir anti-hepatitis C drug candidate—but ultimately, it did not save them from a drubbing late in the month over fears the Obama administration will limit the prices of new drugs. These concerns may be justified in the fullness of time, but are unlikely to be an issue for telaprevir in any case, as curing many otherwise uncurable patients of hepatitis C is extremely cost-effective (in that the cost of treating advanced cases of hepatitis C far exceeds the cost of telaprevir).

Finally, our oil short ETF, DUG, continues to disappoint, down 18% on the month despite a decline in the price of oil.

The risk of a serious downturn continues to be significant here, and consequently we remain net short. However, it does appear that the new administration is angling to establish continuity with the old one with respect to the policy of material intervention in the market to prop up insolvent “too-big-to-fail” enterprises. While we feel these policies are long-term disastrous, there is some “upside risk” should the collective wisdom of the market come to think otherwise. Generally, new political leaders get some benefit of the doubt. So far the the market has not rallied in reaction to the election results (except for the five days leading into the election), but it could still happen.

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Vertex (VRTX) update #21—down sharply on Obamafear

Posted by intelledgement on Wed, 19 Nov 08

Shares of our biopharma company Vertex (VRTX) were hit hard today, down 11% in heavy trading, amid concerns that new Obama administration policies will hurt the profitability of the pharmaceutical industry. Biopharma indices in general were down 5% or more. There is speculation that the imperative to limit health care costs—in order to be able to afford universal coverage—will drive policies to scrutinize how drugs are administered, which could limit usage, and to subject reimbursement rates to cost-benefit analysis, which has been used in Europe to limit prices.

While health care reform in general is a top priority for the incoming administration, we continue to believe that hepatitis C is a big enough—and costly enough—public health problem to make it unlikely that they will adopt measures that would limit access to a treatment as effective as telaprevir appears to be. But the jury is still out and the charge sheet is full, as summarized in this street.com article (Vertex in particular is mentioned on page 4). This situation needs continued attention.

Previous VRTX-related posts:

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