Since touching a low of $26.23 on April 7, 2009, Vertex Pharmaceuticals (NASDAQ:VRTX), a global biotechnology company, has nicely rebounded closing September 17, at $37.95 – annual return in excess of 100%. Though the company announced poor numbers for the second quarter, yet its stock price doesn't show any sign of strains.
Whatz in store for the company?
Vertex's total revenues for the second quarter were $19.1 million, compared to $69.4 million for the second quarter of 2008. The second quarter 2008 revenues included an R&D milestone of $45.0 million that did not recur in 2009. Still its stock price didn't fall by much. The non-GAAP loss for the quarter was $129.3 million, or $0.75 per share, compared to $73.6 million, or $0.53 per share, for the quarter ended June 30, 2008. So do you think Vertex is likely to report R&D milestone revenues and profits in the months to come?
Royalty revenues for the quarter declined to $5.9 million from $9.7 million last year, while Collaborative and other R&D revenues declined to $13.1 million from $59.7 million a year ago. Total costs and expenses for the quarter increased to $176.2 million from $160.9 million a year before. The higher expenses reflects an increase in the number of employees and commercial investments to support advancement of telaprevir toward potential launch. The increase in non-GAAP loss was mainly due 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 initiation of the VX-770 Phase 3 registration program.
Vertex is currently focused on the execution of telaprevir Phase 3 registration program in hepatitis C and to prepare for a New Drug Application submission in the second half of 2010. Beyond Hepatitis C virus (HCV), the company is focusing on conducting a comprehensive program in cystic fibrosis - a life-threatening orphan disorder - with two novel therapies that target the underlying disease mechanism.
Telaprevir milestone revenues
Vertex has been racking up profits of over $1 billion from public offerings listed over the last one and a half years, and has also obtained $160 million in exchange for royalty rights for 2 protease inhibitors that were sold by GlaxoSmithKline plc (GSK), and opted to retool its telaprevir Asian partnership thereby giving up all future royalties in exchange for an injection of instant cash of $105 million. A further cash infusion to the tune of $140-150 million for Vertex is expected from the bonus milestones of Mitsubishi Tanabe Pharma Corp., pending approval of the telaprevir drug in Japan.
The HCV market is set to grow exponentially in the next 3-5 years as a wave of new products enter the market. The market is expected to reach from a current global sum of approximately $3 billion to $8 billion by 2014. As Vertex's telaprevir leads the race for HCV protease inhibitors, I expect the company's stock price to appreciate further. However, the company is not expected to break-even until the first quarter of 2011.
