Vertex Raises $320M in Secondary Stock Offering
Vertex Pharmaceuticals has struck a deal to raise a jaw-dropping $320 million in a secondary offering of stock. The biotech company, which has 1,300 employees at its Cambridge, MA headquarters and 200 in San Diego, is rallying investors around drug candidates that it hopes will set new standards of effectively treating hepatitis C and cystic fibrosis. It is in the final, hugely expensive stages of development to prove that point, and this offering could represent an important test whether investors still have the appetite for this sort of classic biotech risk.
Vertex (NASDAQ: VRTX) said it is offering 10 million new shares, priced at $32 each. Merrill Lynch and Cowen & Co. are underwriting the $320 million deal. The transaction hasn’t officially closed yet, so company officials can’t comment under SEC rules, but we expect to hear more about the strategy when the deal is done.
This much is clear: The company is in the final stage of clinical trials with telaprevir, which is attempting to be a first-in-class protease inhibitor drug for hepatitis C, a chronic liver disease. This drug has shown an ability to almost double the cure rate of standard meds, with a course of treatment that takes half as long. The drug has an opportunity to exceed $2.6 billion a year in U.S. sales in 2013, according to analyst Rachel McMinn of Cowen & Co. The cystic fibrosis drug, VX-770, is being primed for the final stage of clinical trials this year. It represents an opportunity to develop the first oral pill that can affect the underlying protein abnormality that causes the deadly lung disease.
While $320 million might sound like a lot of money to most people, this is actually not a whole lot to Vertex. The company has run up an accumulated deficit of $1.9 billion since it was founded 20 years ago. This year alone, the company expects to report a breathtaking loss of $495 million to $530 million as it conducts a big push to turn telaprevir and VX-770 into FDA-approved products.
The company was already in a position absorb that kind of loss, entering this year with about $832 million in cash reserves. But the new cash will definitely pad the cushion as it makes the switch from a drug development organization into a marketer of new drugs judged on its ability to maximize profits. Earlier this month, Vertex signaled its willingness to make that transition, as its charismatic founder, CEO Josh Boger, announced he will step down and be replaced by Matthew Emmens, a veteran hand at commercializing drugs within big drugmakers.
Investors might balk at the thought of how a new offering will dilute the value of existing shares, but that hasn’t dampened the demand for Vertex stock. The company’s last stock offering was just six months ago, when 7.5 million shares were offered at $25.50 apiece. The stock price has climbed 25 percent since then.