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THE BIOTECH BEAT -- The Vertex Vortex: Drug Development at Hyperspeed?
THE BIOTECH BEAT
By Amy Tsao in New York
At a recent biotechnology conference, Joshua Boger, Vertex Pharmaceuticals' (NasdaqNM:VRTX - news) founder and CEO, sat on a panel of biotech luminaries from the likes of Millennium (NasdaqNM:MLNM - news), Chiron (NasdaqNM:CHIR - news), and Human Genome Sciences (NasdaqNM:HGSI - news). The topic: ``How Genomics Has Effected the Drug Discovery Process.'' All the speakers on stage said their nickel's worth. But for Boger, a former rising star at Merck (NYSE:MRK - news), even a head injury from a basketball game earlier in the week couldn't dull his obvious confidence. Most major drug companies, he noted, believe developing a new drug costs $250 million to $350 million. ``If you do things that way,'' Boger said, ``you're a loser.''
However brash his attitude, Boger knows that biotechnology companies are valued not so much on actual sales and profits as on the promise of sales and profits. All the better, of course, if a drugmaker can deliver both. Vertex seems to promise just that. It has a revenue-generating HIV drug called Agenerase, which is co-marketed with Glaxo SmithKline (GSK ), plus promising research partnerships with such companies as Novartis (NVS ) and Aventis (AVE ), and a dozen new drugs in its development pipeline. Little wonder that most analysts rate the stock a buy.
Vertex, however, is just one of a gaggle of companies trying to make drugs based on the genetic nature of diseases. And the company clearly has its work cut out for it. Agenerase sales and partnership payments gave Vertex $78 million in total revenues in 2000 -- and losses totaling 71 cents a share, or $22 million. Profitability is not on the horizon until 2005. Its stock has come down from a lofty 52-week high of $99, but at about $41, it's still well above its 52-week low of around $19. To become a long-term highflier, the company needs to show that its drug-discovery engine can yield actual drugs. Then, Vertex could be on its way to becoming the New Age drugmaker Boger envisioned when he founded the company 12 years ago.
INTEGRATED APPROACH. A big part of Vertex' appeal lies in its promise of presenting two or three new drugs to the U.S. Food & Drug Administration every year. The company has eight drugs in human testing now and hopes to put five to seven early-stage projects in the clinic this year. These are lofty goals by any standard. And some analysts are voicing skepticism that it can succeed. ``In order to achieve its promise of submitting two to three new drug applications a year, Vertex needs to have near-perfect execution,'' writes David Hines, director of research at Avalon Research Group, in a recent note to investors. ``We believe that the Street is becoming more cautious of Vertex' promise to uniquely deliver almost all of its drug candidates to commercialization.'' Hines has a sell rating on the stock.
Vertex specializes in designing and engineering complex drugs using so-called parallel drug design. With an integrated approach that combines functional genomics and chemistry, Vertex searches for potential drugs across families of drug targets, instead of focusing on one target at a time. The company claims this method of identifying possible drugs is much faster and more productive than the output at traditional drug companies. And Vertex has persuaded eight of the biggest pharmaceutical companies in the world to collaborate with it.
For now, believers in Vertex outnumber naysayers. Many analysts remain steadfast in their positive opinions even though the company has said its most advanced drug, VX-497 for hepatitis C, hasn't done especially well in trials so far. ``It's never great when you miss a primary endpoint, and that increases the risk of failure for this program,'' notes David Molowa, of J.P. Morgan Chase, who still has not changed his long-term buy rating on the company. He adds that Vertex must think VX-497 still has potential since the company plans to continue development of the drug.
``HIGH-OUTPUT ENGINE.'' Ever confident, Boger says detailed presentation of drug-study results at a scientific meeting later this year will make it clear that VX-497 ``has significant advantages'' over ribavirin, which used with interferon is the standard treatment for hepatitis C. The next trial, which is set to begin this year, will include patients and be stretched over a longer duration. Bill Tanner, an analyst with SG Cowen, has more than doubled his estimate of the company's R&D expenses for each year from 2001 to 2003. But Tanner still rates Vertex a buy. ``I get the feeling this is a high-output engine, and they're just now hitting their stride,'' he says.
Tanner isn't alone. ``I own Vertex because of the product pipeline. It has the possibility of being a huge biotech company,'' says Tim Bepler, manager of Orbitex Healthcare Fund. And the company's $700 million in cash, most of which was raised last year through convertible bond offerings, should keep Vertex in health for the next several years.
Next out might be VX-175, a version of Vertex HIV drug Agenerase that requires patients to take fewer pills. It's furthest along in testing. VX-497, which Vertex plans to market on its own, and two candidates in rheumatoid-arthritis treatment are the most advanced prospects in human trials. Expenses associated with the company's numerous projects will double Vertex' loss per share each year through 2003.
GIANT KILLER? Boger clearly wants to play in the big leagues. ``My goal is to grow up and overtake Pfizer (PFE ), not to be Genentech (DNA ),'' he says. ``We're not trying to hide out from Big Pharma by [focusing on] diseases they're not interested in. We tend to go right up against the largest companies.''
Vertex has already gone head-to-head with drug giants with its HIV treatment and fared reasonably well. Now, it just needs to prove that Agenerase wasn't a fluke. ``It's one of the more productive companies out there,'' Molowa says. ``It will be a while before we get more meaningful data on the pipeline, but fundamentally we like the company.'' There are no guarantees, of course. But many analysts think Boger may be onto something big. |
