Vertex $155 mil Deal

[nygirl7]

I dont know much about any of this but to me it seems  like they won't release until 2012 when they debt is paid back.
-----------------------------------------------------------

Vertex to Receive $155M Tied to HCV Drug’s Clinical and Commercial Success in Europe
GEN News Highlights

Vertex Pharmaceuticals entered two deals that will give it $155 million in cash related to the potential clinical success and commercialization of its lead hepatitis C drug, telaprevir, in Europe. While the firm anticipates ending the year with about $800 million in cash, it also increased its net-loss guidance.

In the first transaction, the company is selling its debt that must be paid back by October 31, 2012, for $120 million in cash. The notes are secured by $155 million in success-based payments that Vertex is eligible to receive from Janssen Pharmaceutica. The milestones are linked to filing, approval, and launch of telaprevir in Europe.

Separately, Vertex will receive roughly $35 million in cash for the sale of rights to an additional $95 million in future milestone fees tied only to the launch of telaprevir in Europe. Vertex is not obligated to repay the approximately $35 million to the buyers if the milestone events are not achieved.

Of the $250 million in milestones, $100 million is linked to regulatory filing and approval in Europe and the rest relates to launch of telaprevir in Europe.

Vertex’ collaboration with Janssen is otherwise unchanged by today’s deals. The company remains eligible to receive a royalty on future product sales in Janssen’s commercial territories including the European Union. Vertex retains exclusive commercial rights to telaprevir in North America.

Vertex now expects to end 2009 with approximately $800 million of cash, cash equivalents, and marketable securities. The company expects its fiscal 2009 GAAP loss to be approximately $650 million. The increase results primarily from the decision to retain VX-509 for Phase II clinical development in inflammatory diseases.

[Bill1954]

Thanks for knocking this around with me, Eric; I suppose we’ll have a better idea how all this pans out in a year or two. Take good care,

Bill

[Andiamo1]

I have no idea how pharma prices drugs.   I can guess that they do everything they can to get the price as high as the market will bear, so your suggestion certainly has merit as long as it's legal - LOL.  I do think pharma has some precedent that allows them to trade the cost of the drug against the cost of not taking it.  With HCV, the ongoing cost of treating it is significant and a transplant is off the scale.

Now that we are entering a two tiered system (people with good insurance and the rest of us) they might price it for the high end and provide support for the low end as they do with the current SOC.

Much to my surprise, I have discovered that internists in the upscale areas of Florida have dropped all insurance and charge a yearly flat rate of about $6,000.  I used the internet to look at the CV of local internists and discovered that the gold plated CVs all used the flat rate.  The MDs educated at the Caribbean medical schools still take insurance, the Stanford grads require the flat rate.  Not good!!! Sorry for going off topic.

[Bill1954]

Interesting, thanks.

I guess my question is how do they hang a price on something like this? In construction, we add up our materials, guesstimate how much labor is involved; maybe try to massage a little overhead and profit in there, and hope for the best.

I assume it’s a little different pricing a product like Telaprevir. Do you suppose these guys sit down with the insurance industry in advance and say ‘I’ll show you mine, if you show me yours”? How do they embark on a ten year project to develop a product without knowing in advance roughly how much cost the industry will tolerate?

Up until recently, I thought these new drugs might enter the market priced too high for actuarial tables to allow the industry to support. After some thought, I have to believe that these guys (pharma and the insurance industry) go down for cocktails ahead of time, and discuss this so the price structure can agreed upon in advance.

Just thinking out loud here. Again, thanks for your thoughts—

Bill

[Andiamo1]

Back in the stone age, insurance companies were flush with cash and health care was much easier to deal with.  I had no problem getting insurance companies to fork over a lot of money for Interferon.  I seem to recall the peg/ifn was about $3,000 per month.  That is just a guess, since I can't remember what the actual number was.

I did see a stock analyst predicted that a course of Telaprevir would be $100,000,  but we all know how wrong those guys can be.  I think insurance companies would pay if the final results show a high enough SVR rate:  30 years of HCV ending with a transplant makes $100,000 seem cheap.

I think peg/interferon has come down in price over the years now that their is competition.  Schering had the field to itself in the early days and could charge what it wanted.

Eric

[Bill1954]

Thanks for your thoughts, Eric. USD$ 545,000,000; they’re almost playing with real money there… and that’s just for the EU share of the market. Speaking of money, I wonder how they intend to structure retail pricing. I suppose they know in advance pretty much what the insurance actuaries will allow; and set prices accordingly, eh? No point in releasing a product that the industry can’t (or won’t) supply…

Any thoughts on this side of things? There’s been so much discussion over the years about the release date; I imagine this stuff will be expensive, but I don’t think it could be so pricey as to be unaffordable. You were dabbling with these meds in the days prior to PEG IFN; do you have any recollection as to how that was released in terms of pricing, and if the insurance companies balked at the time of introduction?

Bill

[Andiamo1]

Interesting, thanks for doing the research and posting the data.

I think Vertex is not on budget after seeing the deal that you posted.  My own experience with this stuff is that when you need to ask for more money, you pay it back with some blood.  I doubt this will have any negative impact on the drug release dates.  If anything, Vertex will be even more motivated to get it out as soon as possible to relieve the debt burden.

Eric

[Bill1954]

Here's the poop, from 2006; this helps explain the connection with Janssen as well:

“By Stephen Heuser, Globe Staff  |  July 1, 2006
Vertex Pharmaceuticals Inc. notched a major endorsement for its experimental hepatitis C drug yesterday when global drug giant Johnson & Johnson said it would pay up to $545 million for rights to sell the Cambridge company's treatment in Europe and other overseas markets…”

“…The deal will pay Vertex $165 million immediately, plus as much as $380 million in further payments if the drug is successfully approved and launched. It would also pay Vertex a royalty of more than 20 percent on sales of the drug, and reimburse much of the development costs….”

“…The deal was signed with Janssen Pharmaceutica NV , a division of global drug giant Johnson & Johnson. In the near term, Vertex will be working with Tibotec Pharmaceuticals Ltd. , another Johnson & Johnson subsidiary, on the next phase of European development and testing…”

http://www.boston.com/business/globe/articles/2006/07/01/vertex_forges_545_million_deal_with_jj/

Bill

[Andiamo1]

I seem to remember that, but don'thave any facts.  In this case, it is the revenue stream of Vertex from the European market that secures the debt. Vertex would have revenue even if J&J markets the drug.

[Bill1954]

A couple of years ago, I seem to recall Johnson & Johnson purchasing exclusive right to the EU marketing of VX-950 (now Telaprevir). I wonder how Janssen fits in to all of this; or if Janssen simply purchased rights from Vertex? Does anyone else remember any of this?

Bill

[Andiamo1]

I think this announcement would be taken as negative by the investors.  It has nothing to do with the quality and potency of Telaprevir, just financial issues.

[newleaf09]

I follow Vertex, Merck and Schering and Vertex has been dropping since Sept 30.  Down 4 pts. since then. Schering's been climbing since Sept. 24 and Merck climbing since Oct. 1.  I don't have a clue why.

[Isobella]

http://quotes.nasdaq.com/asp/SummaryQuote.asp?symbol=VRTX&selected=VRTX

Here's yesterdays price with a little bit of history.  All I can tell is it's higher then when I bought it.   I'm hopin it stays that way.

[Andiamo1]

I think this is the work of a creative Chief Financial Officer.  He is using the potential success of Telaprevir as a way to raise money.  I have not devoted a lot of time to this, so I can only guess that it is  a sign the company is having a hard time raising money.  They are using the future revenue of Telaprevir as a way to raise $120 million, but securing it with 155 million is future revenue.

Does anyone know if the stock dropped on this announcement?  if I am correct, it would have dropped.

[Isobella]

Thanks for posting this.  Not that I understand it...but I am hoping someone will come along and explain it.  

I emailed it to Eric....hopefully he'll have some insight.

[nygirl7]

Sorry some noseybody came up behind  my desk to read what I was doing i HATE that......but if anybody understand what this means $$$ go timeline wise I thought I'd post it up.