At a time when the capital markets essentially are closed to most biotech companies, the already well-capitalized Vertex has added to its balance sheet with a public offering that will net about $315 million. The firm sold 10 million new common shares at $32 each on Feb. 18 to three institutional investors, including Capital World, as well as to existing large shareholders.

On Feb. 9, Vertex detailed its 2008 financial performance, reporting it had $832.1 million on hand in cash and equivalents, with a projected net cash-burn rate of $400 million to $430 million for 2009. Rodman & Renshaw's Feb. 18 Biotechnology Balance Sheet notes that Vertex has posted a 43.3 percent gain in market cap over the past 12 months, to $5 billion.

In an interview, Vertex CFO Ian Smith described the offering as part of a broad capital market strategy intended to align investor interests with the company's stage of development. Despite a net loss of $459.9 million last year, the Cambridge, Mass., biotech's stock price has risen steadily in recent months, with investors attracted mainly by the potential of telaprevir, slated to the be the first protease inhibitor for hepatitis C (¹ Also see "Potential HCV Blockbuster, Strong Fundraising Place Vertex In Enviable Position" - Pink Sheet, 29 December, 2008.).

Now in the midst of three Phase III trials comprising about 2,200 patients, along with a European Phase II study investigating the potential of twice-daily dosing, telaprevir continues on a timeline projecting an NDA filing in 2010 and launch in 2011.

"As we've progressed so quickly, our investor base has been turning over," Smith said. "In the last couple of months, we have had the opportunity to bring three high-quality, fundamental institutions into the stock. They approached the company, we were able to herd them all into one common offering and place stock with them directly."

Seeking investors with a long-term view

As a late-stage company moving toward commercialization, Smith said Vertex is moving away from science-based investors who try to predict outcomes of binary events, and toward more stable stockholders seeking longer-term earnings.

Smith wouldn't name the other two institutional investors but did cite American Funds' Capital World Growth and Income Fund, a major investor in pharmaceutical stocks. Pharma stocks comprise the largest single-industry investment in the fund, at 9 percent, with Roche and Bayer listed as its first- and fifth-largest holdings in single companies.

The offering came together quickly, with Vertex announcing it would offer 9 million new shares on Feb. 18, and later that day stating the offering had been priced at $32 per share for 10 million shares. The offering is now closed and Vertex will receive the cash by Feb. 23, Smith said.

Vertex identified its capital market strategy in late summer 2008, he explained, partly out of concern about the economic environment and access to capital. In September, it sold 8.6 million shares in a follow-on public offering, priced at $25.50 per share and netting $217.7 million (² [See Deal]).

This strategy, which includes going directly to institutional investors and telling them about Vertex's progress, has enabled the biotech raise more than $500 million in two "very quick offerings" in the past six months, Smith said.

"Instead of taking a large institution and saying, 'Go buy your stock on the open market,' which might drive the stock price higher, we said, 'No, we'll take the capital,'" he explained, noting that a company can't have too much runway. Issuing the 10 million shares means dilution of about 6.6 percent for Vertex.

Asked if the new cash is intended for the telaprevir program or to help advance other portions of the pipeline, including a potentially game-changing cystic fibrosis candidate (VX-770) that should move into Phase III before mid-year, Smith said he doesn't distinguish between the two imperatives, regarding them as equally important.

Last offering before telaprevir launch?

In a Feb. 18 note on the offering, analyst Geoffrey C. Porges of Bernstein Research said he'd expected Vertex to raise about $200 million during the second half of 2009, and that this financing should be Vertex's last before the expected launch of telaprevir in early 2011. Smith agreed, saying he doesn't expect any other "significant capital activities for the foreseeable future."

Porges predicts telaprevir could produce U.S. gross revenues between $2 billion and $3 billion annually, along with significant rest-of-world sales royalties for Vertex. The company expects sustained viral response data from two of its three Phase III trials during the first half of 2009.

Vertex intends to commercialize telaprevir on its own in the United States, while Janssen holds commercialization rights in Europe and several emerging markets with Mitsubishi holding rights in Japan and other far-east countries. Phase III data for the drug is expected in 2011 in Japan, which has among the highest incidences of HCV in the modern world, ThinkEquity analyst Jason Kolbert wrote in Feb. 19 note.

Porges also speculated that Vertex "could be building some reserves for strategic purposes," perhaps for in-licensing or partnering around other HCV therapies to market in combination with telaprevir. Vertex has its own next-generation protease inhibitor VX-813 in Phase I, but halted another such program, VX-500, after disappointing results from a Phase Ib dose-ranging study in treatment-naive genotype 1 HCV patients.

Smith said combination therapy involving telaprevir is a long-term goal for Vertex, and may be something it will focus on in the 2014-2015 timeframe.

On Feb. 5, Vertex announced that current CEO and founder Joshua Boger will retire May 23, with Matthew Emmens, former CEO of Shire, stepping in as president, CEO and chairman. Emmens is already serving as Vertex's president; Boger will remain on the Vertex board after his retirement goes into effect.

-Joseph Haas (j.haas@elsevier.com)

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