Vertex’s Profitability Hints It May Be Shopping Soon

November 4, 2015
By Mark Terry, Breaking News Staff

Long viewed as a possible acquisition target, Boston-based Vertex Pharmaceuticals is now hinting it might be in the market to buy other companies.

Timing may be everything. The company launched a hepatitis C drug, Incivek, and hit $1 billion in sales in 2012, its second year on the market. Unfortunately for Vertex, Gilead Sciences, Inc. and AbbVie came out with their better hepatitis C therapeutics, Harvoni and Viekiera Pak, respectively, which pretty much destroyed Incivek. Incivek is no longer being manufactured.

But in July of this year, Vertex announced that the U.S. Food and Drug Administration (FDA) had approved the company’s Orkambi (lumacaftor/ivacaftor) for patients with cystic fibrosis (CF). It is the first medication approved that treats the underlying cause of CF in patients with two copies of the F508del mutation.

Vertex manufactures Kalydeco, which is used to treat a rare form of CF in patients with a specific G551D mutation. Of the approximately 30,000 people in the U.S. with CF, about 1,200 people are believed to have the G551D mutation. Orkambo, on the other hand, has the potential to treat about 8,500 patients with CF in the U.S..

This has given Vertex a major boost in profits, and is expected to become profitable in 2016. In the first three quarters of 2015, it showed a net loss of $482.6 million. However, by the end of September it had $1 billion in cash and equivalents compared to its $348 million of debt.

One hitch is Orkambi’s price tag, which is $259,000 per year. Given the current U.S. political and consumer focus on drug pricing inspired by the Turing debacle and Valeant ’s ongoing price problems, a drug with that kind of price tag would give companies interested in acquiring Vertex pause.

“With all the political pricing pressure on drugs,” Jason McCarthy, an analyst with the Maxim Group told BloombergBusiness, “you wonder if it’s worth someone stepping in and buying them at that valuation right now.”

On the other hand, given the fairly small number of patients being treated by Orkambi and the cost of development, Vertex’s chief executive officer, Jeff Leiden, defends the price. “That gets lost in the whole pricing debate,” he told Bloomberg.

Late last month, Vertex announced a strategic research collaboration deal with Cambridge, Mass.-based CRISPR Therapeutics. The two companies will study if using CRISPR-Cas9 techniques has practical use across multiple diseases once targets are genetically validated. CRISPR is a technique that uses a bacterial defense mechanism to turn viruses into a tool to edit genes. The two companies will initially focus on CF and sickle cell disease.

Now that Orkambi is turning around the company’s profitability, it needs to focus on expanding its pipeline. Leiden indicated that the company is looking at more deals similar to the CRISPR deal. Other companies working on gene therapy-based research in the Cambridge area include bluebird bio Inc. , Dimension Therapeutics Inc. , Voyager Therapeutics, Alnylam Pharmaceuticals Inc. , and Dicerna Pharmaceuticals Inc. Leiden did not specify what deals might be upcoming.

Vertex is currently on an upswing after a volatile year and recent plunge. Shares traded on Feb. 9, 2015 for $107.88, rose to $134.25 on Mar. 19, dropped to $117.23 on April 2, then jumped back to $135.82 on April 23. Share prices spiked to $141.48 on Aug. 19, then plunged to $98.50 on Sept. 28. Currently shares are trading for $128.36.

Will someone buy Vertex? Or will the company buy another company? “There’s complete alignment in the employees, the management and the board that we can create more value for patients and we can create more value for shareholders by being independent,” Leiden told Bloomberg. “And now we can have a track record that we can really point to and say, “This is the proof of that."

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