Vertex's Telaprevir May Become a Multi-Billion Dollar Drug

On Monday, March 31st, Vertex (VRTX) announced, through an abstract, the interim results of an open-label phase 2 trial for Telaprevir for treatment of Hepatitis C. 26 of 32 patients who previously failed other therapies (81%) experienced rapid virologic response [RVR] after four weeks of treatment. Even though these rates may not be sustained in longer term, chances are a good portion of these patients will be cured.

The release of these results has prompted analysts who disliked the company and the stock last week to suddenly change their minds. I was surprised at the timing of this news as I was expecting some results released in the second half of this year.

If you read through some of my past articles, you will find that I have violated almost every rule of investing when it comes to Vertex Pharmaceutical's stock. In fact, I have even called my behavior stubborn, which always guarantees significant losses when trading or investing.

But my fascination has always been with Telaprevir, not the stock or the company. I have always believed that this drug had the best potency, efficacy and side effect profile which would make it a standard therapy for Hepatitis C, a disease with poor standard of care therapy. I won't get into the biochemical details but this is not something easily reproducible by other pharmaceutical companies. This partially explains why other similar products have failed or have had major setbacks in the clinic.

Some people have blamed the recent volatility in the stock price on the management of promising results. In fact there have been some class action lawsuits filed. I am not a legal expert but I doubt they will serve any purpose besides costing the taxpayers some money and making some lawyers rich. The lawsuits will end up getting thrown out. I wish someday the laws will change to stop this ridiculous and destructive behavior!

But, I blame investors (they should really be called wall street traders who manipulate stock prices) who don't understand drugs and drug development. I blame traders and fund managers who have a 1-2 quarter outlook on returns with alarmingly high turnover rates in their portfolio. However, I don't blame anyone but myself for my losses (and gains). I fully understand that the risks of investments are sometimes equivalent to the risks of a casino game!

The stock may fluctuate 50-60% in a year but the story remains the same. Telaprevir is the first Hepatitis C Protease inhibitor in Phase III clinical trials. It is the only drug to show significant improvement to standard of care in both treatment naive and non-responding patients and it will be the first one on the market as early as late 2009 (maybe!). It has the potential of becoming a multi-billion dollar drug, and for that VRTX should be valued no less than 5 billion dollars or about 50% higher than its current price of $25.4. I am basing this on other blockbuster phase III products such as Celgene's (CELG) Revlimid.

Bottom line: Buy Vertex for the long term for a once in a lifetime return!

Disclosure: The author has a long position in this company. The author promises to have a better attitude towards Wall Street!

Comments

[TwinStridesForCF]

Mr. Saadat....I read your article and find it very interesting. I am a mother of twins that have cystic fibrosis. Vertex has "promising" results to "target the disease" instead of just targeting the symptoms, as in other companies have introduced so far to date. I feel ya, I see the "law suits" about "promising results", however, my gut feeling Vertex is headed somewhere towards CF "despite" their less encouraging facts towards other medications in research. I have been waiting and hoping for 12 yrs so far to hear an encouraging word to my heart and ears regarding CF. I am a hesitant person as far as "believing" that this needle in the haystack "devastating life shortening disease" will become a reality for a cure in "my twins lifetime". So, all in all, I have a feeling this company will do it's job, if not a cure, but atleast work towards one.

Kathy...Mom To Twins With CF
My personal quote: If there is a "cure" this very "moment" and this "moment" is not soon enough, you'd hear this twins mom "Across America" "YESSSSSSSSSSSSSSSSSSSSSS"!!!!!

[FalseProfit]

The co. trades at 15x revenues, and is burning through more than $250Mn a year. I fail to see how its valuation of $3Bn+ can be justified even if its revenues eventually are in the billions, given that it will take many years and hundreds of millions more in operating losses.