Saturday, July 11, 2009

Vertex's Teleprevir Shows Some Serious (Funding) Chops, Here. . . .

I guess when your lead candidate, Teleprevir, posts SVR (sustained virological response) rates like these, in patients that have failed other courses of treatment -- for the debilitating disease Hepatitis C, you can pretty much ask for anything -- and get most of it. From Vertex's press release, of this morning:

. . . .Vertex announced its intention to sell the rights to certain milestone payments tied to the future regulatory filing, approval and market launch of its hepatitis C virus (HCV) protease inhibitor drug candidate, telaprevir, in Europe.

. . . .Janssen Pharmaceutica N.V., a Johnson & Johnson company, agreed to pay Vertex a total of $250 million in aggregate milestone payments for successful development and launch of telaprevir in the European Union.

The milestones anticipated for telaprevir in Europe include $100 million related to regulatory filing and approval and $150 million related to launch of telaprevir.

Vertex anticipates, based on projected development and commercial timelines for telaprevir, and assuming successful development, that it will earn these milestones prior to April 2012. If the intended sale of the future milestone payments announced today is successful, Vertex would receive a one-time cash payment that reflects a substantial percentage of these future milestones payable by Janssen. . . .

Vertex is pretty much able to write its own ticket here. Instead of selling additional common stock, and thus diluting the various holders of the $320 million Goldman, Sachs underwritten offering of just last year, Vertex is shopping the rights to its next J&J milestone payment -- a notion that would be unthinkable for a candidate like Schering-Plough's Boceprevir. Not that any third party is helping fund Schering-Plough's candidate -- but the molecule hasn't posted anywhere near the efficacy data that Vertex's Teleprevir has. It is telling that Morgan Stanley, often a banker for Schering-Plough, is structuring the auction of the milestone payments for Vertex. Let's take a look at how this all might work out.

It is an open question, but one must start by assigning a discount, or risk value, to the possibility that Vertex never reaches the market approval trigger for the milestone payment. Me? I'd not be surprised to see the discount at which this deal gets done (exclusive of the present-value of money, or interest discount -- see next paragraph) come in at under 10 percent.

Said another way, before paying a simple time-value of money discount, I think Vertex might pocket over 90 percent of the $250 million, or $225 million. Pretty impressive, given that the Teleprevir Phase III trials are still underway, and Phase II trials aren't completely concluded.

Now, let's surmise that Morgan Stanley is suggesting that a 3 percent annual interest/discount rate for getting the money over two years early, is appropriate, in this market. And let's rather conservatively project that the milestones would both occur mid-2012. We'd then reduce the $225 million by another 6.09 percent (to allow for compounding, if the amount paid today, had earned 3 percent in each of the next two years, reaching $225 million by mid-2012. That interest equals $13.7 million; $13.7 million off of the $225 million leaves $211.3 million, when $225 million in 2012, is discounted to today's value), or $211.3 million -- net, to Vertex, today -- from the auction. Not too bad, as haircuts go, from Vertex's perspective.


Anonymous said...

So, J&J was the 'other' suitor and they got a look at the upcoming utility of S/P's overall Hep C franchise and a advance look at Boce....they declined to 'own it all.' Then come back and give money for a partial on 'futures' for

I think that says a lot of what they think of Boce!

Anonymous said...

Hey Asshole! I'm not sure which competitor you work for, or if you're a disgruntled employee, or loser ex-employee, but just fuck right off. It's obvious that you've been scorned by SP in some way, but get over it. I bet you stalk your ex's, too. This company is an important employer to many people in the US, and around the world. May you get a scorching case of herpes that valtrex cannot ease.

Condor said...

Thanks, Anonymous commenter No. 1 -- I do think there is a message, here, in these events -- and it is not a very happy message, for the prospects of boceprevir (a Schering-Plough candidate). It is certainly true that J&J would have asked questions about boceprevir -- but I am unsure haw "deep" the dive would have been -- given that J&J hadn't yet -- and ultimately didn't, make any firm offers.

And, just so we're clear, J&J is obligated to pay $250 million, should teleprevir get approval, and reach market. J&J could even put in a bid here -- if it thought that Vertex would take a substantial haircut.

This could be very interesting, indeed. Do stop back.



As to Anonymous comment No. 2: Um, thanks for your input -- such as it is.

My advice? Do try the decaffeinated brands.

They are, in fact, surprisingly, very tasty.

Do stop back -- with caffeine, or without it -- as all opinions are welcome here.

Namsate, just the same.

Anonymous said...

Boceprevir will be approved either before or at the same time as telaprevir. All of you naysayers will be quite surprised at the end of the day. The loudest is not always the best or the fastest. Vertex has done a phenomenal job of tooting their horn and raising money, but let's hold judgment until the game is over.

Condor said...

Maybe, Anonymous commenter No. 4 -- but even if Schering-Plough's boceprevir wins approval, will it sell as well -- as teleprevir?

With teleprevir posting much better SVR rates (v. boceprevir) in patients who've failed earlier courses of Hep C treatment, I think teleprevir is destined to outsell boceprevir, and to do so, convincingly.

Thanks for stopping by -- do stop back!


Anonymous said...

To follow-up Condor, most people miss a couple of points on the non-responder data. First, SP's phase 2 non-responder trial was designed to gather information in hard to treat patients and it did that. Vertex designed their non-responder trial to get SVR. SP showed in RESPOND-1 that patients who are interferon insensitive have a much greater chance of developing resistant mutations than of having an SVR. Even the VERtex non-responder data shows that. If your SVR is <50% that means that >50% will develop mutations. Boceprevir works about the same in non-responders as telaprevir, the issue is that the individual studies are not comparable, so you can't just compare them head to head; you have to consider the specifics. I am not a vested party either way, but I will say that in the media/investment community telaprevirs benefits have been greatly played up, while the rash issue has been greatly undersold. On the other hand, everyone seems to look for every opportunity to dismiss boceprevir, from underplaying its efficacy to overstating and blowing out of proportion the anemia issue. While if you look at it objectively the data boceprevir data is quite strong. Like I said, wait until the NDAs are filed and ruled on. My prediction is that boceprevir is no worse than telaprevir, and may even be better when all is said and done.

Condor said...

As ever, this last comment is what makes a market: Anon. No. 5 says it will be a dead-heat.

I say VRTX's teleprevir will be the clear efficacy winner (and the first to receive FDA approval).

We shall see.

Maybe I'll go find out how VRTX's rights auction is faring.