Uh-oh. VRTX's recent CF data (previously covered here) isn't as positive as the company announced three weeks ago. VRTX stock lost $1.5B in value as a result, but that's only half the story, as VRTX is going to be sued out the wazoo by shareholders who bought this month and aren't in the money.
The consequence for poor reporting of results has been set in the finance industry - if you mis-report your quarterly or annual financials or otherwise deceive the shareholders, someone (the CFO) gets booted. It's a bit different with scientific data as in this case, but at a minimum, I'd like to see Vertex's Chairman/CEO/President Jeff Leiden relinquish his Chairman and/or his President title - this episode suggests that more oversight is needed up there in Cambridge, MA.
Showing posts with label VRTX. Show all posts
Showing posts with label VRTX. Show all posts
Wednesday, May 30, 2012
Monday, May 7, 2012
VRTX=GILD?
Fantastic article today by The Street's Adam Feuerstein labeling Vertex as the next Gilead after VRTX revealed good early data on their cystic fibrosis therapies Kalydeco and VX-809. He's absolutely spot-on, which makes me both happy and sad, as I'm a fan of VRTX, but sold out of VRTX stock some time ago based on their Hep-C approval, so I missed an opportunity, as VRTX stock is up 55% today.
(Here's a news story on the VRTX CF news.)
Vertex added about $4B in market cap based on the news, but this probably understates the potential for VRTX, as Feuerstein postulates that the VRTX CF therapies could contribute $6-7B in annual revenue once approved. By way of comparison, GILD is worth about $38B, while VRTX is worth about $12B today.
I'd predict that VRTX never makes it as high as GILD, with an acquisition by a big pharma to take place before then, but VRTX has been steadfastly independent throughout its' history in spite of being an attractive target for many periods of its' history. In fact, the CF news - which transforms VRTX from a 1-dimensional company to a multi-dimensional company* probably insures that JNJ won't want to/be able to buy-out VRTX in the near term based on the success on Telapivir, their partnered Hep C therapy.
The next thing to watch for is the FDA reaction to the VRTX CF data. You can never predict an early or accelerated approval, but the current FDA administration seems more open to green lighting clinical success that might have a broad impact. Right now, I'd bet on an earlier than expected approval, but not one in 2012, as the CF data is only from a Phase II study. It will take some time to design and initiate the Phase III trial, but we could get approval after analysis of PIII interim data (2014?), or perhaps a very limited conditional approval for use in patients with a very specific mutation (F508del.)
Oh, btw: I'm a little late on this, but I just noticed that in 2011, VRTX achieved positive operating cash flow, - one more reason to love the company and perhaps they won't even need to raise equity to support the commercialization of the CF developments.
* just to be clear: the label "1-dimensional" isn't meant to be pejorative. Having "only one" blockbuster is still an absolutely screaming corporate success, and even that label downplays the rest of the company's research programs and existing products.
(Here's a news story on the VRTX CF news.)
Vertex added about $4B in market cap based on the news, but this probably understates the potential for VRTX, as Feuerstein postulates that the VRTX CF therapies could contribute $6-7B in annual revenue once approved. By way of comparison, GILD is worth about $38B, while VRTX is worth about $12B today.
I'd predict that VRTX never makes it as high as GILD, with an acquisition by a big pharma to take place before then, but VRTX has been steadfastly independent throughout its' history in spite of being an attractive target for many periods of its' history. In fact, the CF news - which transforms VRTX from a 1-dimensional company to a multi-dimensional company* probably insures that JNJ won't want to/be able to buy-out VRTX in the near term based on the success on Telapivir, their partnered Hep C therapy.
The next thing to watch for is the FDA reaction to the VRTX CF data. You can never predict an early or accelerated approval, but the current FDA administration seems more open to green lighting clinical success that might have a broad impact. Right now, I'd bet on an earlier than expected approval, but not one in 2012, as the CF data is only from a Phase II study. It will take some time to design and initiate the Phase III trial, but we could get approval after analysis of PIII interim data (2014?), or perhaps a very limited conditional approval for use in patients with a very specific mutation (F508del.)
Oh, btw: I'm a little late on this, but I just noticed that in 2011, VRTX achieved positive operating cash flow, - one more reason to love the company and perhaps they won't even need to raise equity to support the commercialization of the CF developments.
* just to be clear: the label "1-dimensional" isn't meant to be pejorative. Having "only one" blockbuster is still an absolutely screaming corporate success, and even that label downplays the rest of the company's research programs and existing products.
Monday, February 28, 2011
Genzyme: one less hope for a biotech to graduate to big pharma status
Add Genzyme to the list of biotech companies that made it to scale, and could have ultimately "graduated" to big pharma status. While I am happy for GENZ shareholders (and employees), GENZ's fate further confirms that all biotechs - even the successful ones - are due to be acquired by big pharma.
Genzyme joins Genentech, MedImmune, ImClone, and OSI, as operating companies with revenues in excess of $1B that have been absorbed by Big Pharma.
Why this matters? Because building a company to be acquired and building the best company are two different strategies. Given the developments with the companies above, one could question the wisdom of adopting any strategy but building to sell.
Who's left:
Amgen - there were loud rumors about PFE buying AMGN 3-4 years ago after reimbursement for Amgen's Epo was reduced. The emergence and success of D-Mab (osteoporosis drug) has kept Amgen an independent company - and there is still hoped for sales growth from personalizing Vectibix, but there doesn't seem to be either another exciting late stage product in development, nor much talk of AMGN acquiring companies or drugs to build and diversify their portfolio.
One factor surprisingly prominent in driving M&A discussions is the age of the selling CEO (GENZ's Termeer is 64), and AMGN's Kevin Scharer turns 63 on Wednesday, Mar 2. CEOs generally don't put their companies up for sale because they hit a certain age, but rather they are a little more receptive to acquisition overtures and because CEOs on the metaphoric "back nine" of their careers don't hold acquisitions hostage to demands for a significant role in the resulting merged company.
Biogen - which has previously been put in play by Carl Icahn, so you can't expect it to stand-alone for too long.
Celgene - I think the one to watch. They have the resources (i.e. cash flow) to reinvest in expanding the product portfolio, their CEO is hungry, and they might not be viewed as attractively by acquirers simply because Celgene is not the product of a novel technology platform. (Revlimid is a fantastic drug, but it's technical roots go back to the 1960's.)
Cephalon - Strong with almost $3B in annual revenue, CEPH has the added advantage of a diverse business. The company has a new CEO as of December 2010 following the death of their founder and CEO, so I'd assume that the new CEO will want to stay independent for the immediate future, while the company climbs a steep growth curve from a number of new product releases over the last 2-3 years. As of now, CEPH lacks a blockbuster drug, which often drives acquisition interest.
Gilead - made further steps towards the big leagues by buying Calistoga last week, which not only adds scale, but also gets the company into a new, large market (oncology.)
Onyx - no way they're independent 3 years from now. Either Nexavar's growth continues and their partner Bayer decides to buy them, or Bayer's follow-on (son of Nexavar) makes the company put themselves up for sale.
Vertex - The company of "Billion Dollar Molecule" fame has lived many lives, and probably rebuffed many suitors, but the future of this company is completely tied to it's late-stage HepC drug. The drug, a potential blockbuster, is partnered with JNJ ex-US, meaning one of 3 things is likely to happen to VRTX:
1) The drug is a smashing success - JNJ decides to buy VRTX to get 100% of the growth, especially since they'll have a great view of sales performance, as they distribute the drug in Europe and elsewhere.
2) The Hep C drug is a middling success, but ultimately shares the market with one or more of the competing emerging HepC drugs. In this scenario, VRTX becomes valued at whatever option value the market perceives JNJ to place on VRTX, at least until VRTX gets another non-HepC product to the late stage.
3) drug not approved, Vertex leaves a big, smoking crater. (Clinical data released so far indicates the drug is strong and that this scenario isn't likely.)
Keep in mind: VRTX's current $9B valuation is ~5% of JNJ's valuation. To an acquisition-driven company like JNJ, VRTX would be a snack.
Are there any other candidate companies that could grow into multi-billion dollar competitors to big pharma?
Genzyme joins Genentech, MedImmune, ImClone, and OSI, as operating companies with revenues in excess of $1B that have been absorbed by Big Pharma.
Why this matters? Because building a company to be acquired and building the best company are two different strategies. Given the developments with the companies above, one could question the wisdom of adopting any strategy but building to sell.
Who's left:
Amgen - there were loud rumors about PFE buying AMGN 3-4 years ago after reimbursement for Amgen's Epo was reduced. The emergence and success of D-Mab (osteoporosis drug) has kept Amgen an independent company - and there is still hoped for sales growth from personalizing Vectibix, but there doesn't seem to be either another exciting late stage product in development, nor much talk of AMGN acquiring companies or drugs to build and diversify their portfolio.
One factor surprisingly prominent in driving M&A discussions is the age of the selling CEO (GENZ's Termeer is 64), and AMGN's Kevin Scharer turns 63 on Wednesday, Mar 2. CEOs generally don't put their companies up for sale because they hit a certain age, but rather they are a little more receptive to acquisition overtures and because CEOs on the metaphoric "back nine" of their careers don't hold acquisitions hostage to demands for a significant role in the resulting merged company.
Biogen - which has previously been put in play by Carl Icahn, so you can't expect it to stand-alone for too long.
Celgene - I think the one to watch. They have the resources (i.e. cash flow) to reinvest in expanding the product portfolio, their CEO is hungry, and they might not be viewed as attractively by acquirers simply because Celgene is not the product of a novel technology platform. (Revlimid is a fantastic drug, but it's technical roots go back to the 1960's.)
Cephalon - Strong with almost $3B in annual revenue, CEPH has the added advantage of a diverse business. The company has a new CEO as of December 2010 following the death of their founder and CEO, so I'd assume that the new CEO will want to stay independent for the immediate future, while the company climbs a steep growth curve from a number of new product releases over the last 2-3 years. As of now, CEPH lacks a blockbuster drug, which often drives acquisition interest.
Gilead - made further steps towards the big leagues by buying Calistoga last week, which not only adds scale, but also gets the company into a new, large market (oncology.)
Onyx - no way they're independent 3 years from now. Either Nexavar's growth continues and their partner Bayer decides to buy them, or Bayer's follow-on (son of Nexavar) makes the company put themselves up for sale.
Vertex - The company of "Billion Dollar Molecule" fame has lived many lives, and probably rebuffed many suitors, but the future of this company is completely tied to it's late-stage HepC drug. The drug, a potential blockbuster, is partnered with JNJ ex-US, meaning one of 3 things is likely to happen to VRTX:
1) The drug is a smashing success - JNJ decides to buy VRTX to get 100% of the growth, especially since they'll have a great view of sales performance, as they distribute the drug in Europe and elsewhere.
2) The Hep C drug is a middling success, but ultimately shares the market with one or more of the competing emerging HepC drugs. In this scenario, VRTX becomes valued at whatever option value the market perceives JNJ to place on VRTX, at least until VRTX gets another non-HepC product to the late stage.
3) drug not approved, Vertex leaves a big, smoking crater. (Clinical data released so far indicates the drug is strong and that this scenario isn't likely.)
Keep in mind: VRTX's current $9B valuation is ~5% of JNJ's valuation. To an acquisition-driven company like JNJ, VRTX would be a snack.
Are there any other candidate companies that could grow into multi-billion dollar competitors to big pharma?
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