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Vertex Sells Royalty Rights to HIV Inhibitors for $160 Million to Fund Telaprevir Development
  By Tiffany Turner
Staff Writer
Vertex Pharmaceuticals Inc. is unloading two HIV protease inhibitors it helped develop in a $160 million deal with GlaxoSmithKline plc in which it agreed to sell rights to future royalties for Lexiva and Agenerase.
The companies first teamed up under a 1993 license agreement for the HIV protease inhibitors, and in 2007, Cambridge, Mass.-based Vertex received net HIV royalty revenues of $34.1 million based on royalties of $48 million from London-based GlaxoSmithKline plc. However, Vertex made $13.9 million in payments to a third party with respect to that agreement.
As a result of its sale of future royalties, Vertex no longer will make royalty payments to a third party for Lexiva and Agenerase. And that divestment of noncore assets should increase the firm's flexibility and facilitate development of Vertex's hepatitis C portfolio.
In fact, strengthening the company's hepatitis C offerings was the key impetus behind the deal, said Ian Smith, executive vice president and chief financial officer. "Our principal investment in our business today is toward hepatitis C. We have a lead product in Phase III," he told BioWorld Today.
Indeed, the anchor of Vertex's portfolio is its investigational hepatitis C virus (HCV) protease inhibitor telaprevir (VX-950), which, in April, demonstrated positive data in two large Phase IIb trials in combination with pegylated interferon (peg-IFN) and ribavirin (RBV) in treatment-naive, genotype 1-infected HCV patients.
Data from the PROVE 1 trial and interim analysis from the PROVE 2 study showed consistently higher sustained virologic response (SVR) rates and antiviral response in the 24-week telaprevir arms, with 61 percent of patients in PROVE 1 and 68 percent in PROVE 2 achieving sustained virologic response, compared with 41 percent of patients in the PROVE 1 control arm and 48 percent of patients in the PROVE 2 control arm having undetectable HCV RNA at 12 weeks post-treatment. Smith said that telaprevir is in Phase III development in treatment-naive patients, but the company also hopes to reach out to patients who have not responded to other therapies.
"We hope to advance into Phase III studies with treatment-failure patients in the near-term," he said.
The recent divestment marks a savvy move by the company to focus on its most promising horse in the race. "If we look strategically at our business, there's a priority for us to develop telaprevir in hepatitis C. And if we look at where we want to invest our capital today, it is toward hepatitis C," Smith said. In addition, he said it is important for a development-stage company like Vertex, to bolster its financial strength in the short term.
"Taking the royalty stream that would be ours in the future and creating capital today is much more valuable for our business," Smith said. "So instead of a royalty stream that would have been worth approximately $35 million of cash flow per year over a future period, for us, it is much more important to have that financial strength of $160 million today."
Smith said, "I think it's important to look at our complete financial picture," he said. "We ended our [first-quarter] with approximately $750 million of cash and equivalents. We received a $45 million milestone payment at the beginning of [this quarter] for the commencement of the Phase III program in telaprevir." And with the addition of the $160 million that the company will net in the deal with GSK, Smith tallied Vertex's capital at about $950 million, an amount that far exceeds the company's financial guidance for the year of $350 million. But Smith said the most important take-away from the deal is not how much money the company has in the bank, or how far this infusion of capital will take the company with its lead asset. Instead, he said, Vertex gains more in increasing its flexibility to invest in a myriad of development opportunities.
"I don't think it's about how far this will go. It's about building the financial strength to allow us to invest in hepatitis C," Smith said. "We already have a strong financial position, and this further strengthens it, but this really allows us to take on all the opportunities that are surrounding us in hepatitis C."
In addition, the company has other assets it may elect to focus on in the wake of the deal. Smith said Vertex has a number of second-generation products in earlier-stage development for a variety of indications, such as the treatment of viral diseases, inflammation, autoimmune diseases, cancer and pain. The company also has a potential product in development for cystic fibrosis. "And we have our small-molecule research, which is where all of these drugs came from," he added.
In retrospect, Smith said the new deal does not really give Vertex a competitive advantage over other players in the HCV space. "Our competitors are already financially sound, because most of our competitors are big pharma firms," he said.
But he said the divestment does fit with the company's fiscal practices. "We wanted to balance our investment in research and development with our future balance sheet strength, and that's why we're choosing today to monetize our future royalty stream, to strengthen our position today. It's been our mantra. It's been our financial strategy over a number of years, and we're in a strong financial position," Smith said.
Shares of Vertex (NASDAQ:VRTX) gained 98 cents Tuesday, to close at $29.53. _ Published June 4, 2008
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