Vertex (VRTX) -- Is it Worth The Price?
I get a lot of inquiries from subscribers to my ChangeWave Biotech Investor about Vertex (VRTX).
I am not fan of the stock, although I am a little more bullish about the company itself based on something not often factored into biotech stock buying -- valuation. This is one expensive stock. It was expensive when it traded past $45 a few months ago and even at $30 and change it sports a near $4 billion dollar market cap. Yes, it has fast growing revenues and about 20 years worth of cash, but I have seen this before.
The stock price is currently being driven by optimism about its hepatitis C treatment, VX-950, now in mid-stage or phase II trials. The results were decidedly mixed. While a good number of patients responded well, 11% dropped out due to side effects -- and in this market, where there are several available treatments, that is a big deal.
And, remember, this drug in trial was given to patients in combination with two other drugs, pegylated interferon and ribavrin, so it is more expensive and less convenient to take than the existing standard of treatment. Not to mention competitors in this market are led by Roche, a big player in the viral market currently targeting Hep C with existing and new drugs in trial. Vertex is co-developing the drug with Tibotec of Ireland and retains North American marketing rights.
Does Phase II optimism (and a successful Phase III which might lead to a drug approval in 2010 at the earliest) justify a $4 billion market cap? No.
Will it get approved? Probably, but how much will be sold is the real question.
It will be a slow build at best and by the time it could be truly successful other treatments will be coming to market.
Is the company in any financial trouble? No. It has almost three quarters of a billion in the bank and many years of burn before it would need to go to the market again.
The bottom line is that the stock may be 33% off its highs, but stay away. Not all that glitters is really gold....
Comments (1)
Michael, CEGE is running two Phase III trials for GVAX in HRPC/AIPC...VITAL-1 for asymptomatic patients, in which it's GVAX monotherapy vs Taxotere monotherapy. VITAL-2 is for symptomatic patients, pitting GVAX+Taxotere vs Taxotere monotherapy. VITAL-1 will probably be fully enrolled sometime between mid-2007 and mid-2008.
CEGE has an SPA with the FDA for VITAL-1, but they were only able to negotiate superiority...so CEGE apparently has to beat Taxotere statistically significantly in overall survival. That's going to be awfully difficult, as the recent TAX327 subgroup data for asymptomatic patients presented at Feb 2007 ASCO Prostate showed 23.0 months median survival for Taxotere vs 19.8 months for control.
VITAL-1 is 80% powered for a 33% improvement in median survival over Taxotere. In other words, even if the GVAX arm achieves 30.7 months median survival vs 23.0 months for the Taxotere arm, there still is a 20% chance these results would not be stat sig. I give GVAX less than 10% chance of achieving success in this trial.
Posted by walldiver | April 19, 2007 5:50 AM
Posted on April 19, 2007 05:50