Creative financing – the Vertex way

Does the current pain of financing just affect small underfunded companies, with weak pipelines? It seems not. Last month, Vertex announced it was selling its European milestone payments for its ph III program, Telaprevir for hepatitis C. Key points in the release, regarding the value of these milestones and likely timing, state that:

The milestones anticipated for telaprevir in Europe include $100 million related to regulatory filing and approval and $150 million related to launch of telaprevir.

Vertex anticipates, based on projected development and commercial timelines for telaprevir, and assuming successful development, that it will earn these milestones prior to April 2012. If the intended sale of the future milestone payments announced today is successful, Vertex would receive a one-time cash payment that reflects a substantial percentage of these future milestones payable by Janssen.


We don’t know what the value would be of the “potential one-time cash payment”, but it has to be significant. And this isn’t the first time Vertex has engineered such a deal to realize some future milestone payments in return for cash today – it did a similar deal with its two HIV drugs, under its 1993 license deal with Glaxo, in 2008 for a one-time payment of $160 million.

Now, Vertex could be considered one of biotech’s major success stories. The company was founded in 1989, listed in 1991 (NASDAQ: VRTX), with as high a profile as any biotech (being the subject of the fascinating true life account of founding and building a biotech – The Billion Dollar Molecule, by Barry Werth).

Vertex has a current market cap of $6.4 billion, and a strong balance sheet with $754 million in cash and equivalents. (Even if you discount the convertible notes due 2013 of $144 million, this still leaves just over $600 million net cash). And in July it also announced an additional upfront license payment of $105 million from Mitsubishi Tanabe, with future potential milestones, to develop and commercialize Telaprevir in Japan. However, late stage drug development is very expensive, and the current run rate of cash burn is over $650 million (based on Q2 financial results). So, Vertex has just over 1 yr of cash, and is bolstering its balance sheet by judiciously selling off assets which will ultimately support its own drive for Telaprevir in the US and North America.

The moral? As unprofitable and cash burn companies, no biotech can ever rest on its laurels. Cash will always be king, and find any which way you can to fund key value drivers within a portfolio: sell the family silver to save the house.


This comment was written by Raman Minhas. He is CEO of ATPBio, a consultancy firm providing strategic insight and transaction support to the life sciences industry.


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