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Vertex Pharmaceuticals Incorporated Message Board

  • johnf50 Oct 11, 2011 3:20 AM Flag

    Why I bought today.

    Incivek: 2,515.13 million net income in 2011 with 9% discount up to year end 2015; 75% market share; 1% market growth; 75% discount years 2016 through 2017 to account for historical average of 1 in 4 probability for PSI-7997 success; 200% discount years 2018 through 2020 to account for all oral regimen competition including Alios. NPV $10,109.28 million.
    Incivio: 5 million market size; 75% market share; $9,000 Rx royalty to VRTX; 1% annual growth, 9% discount years 2011 through 2015; 75% discount years 2016 through 2017; 200% discount years 2018 through 2020. NPV $2,713.09 million.
    Alios Venture: 50% of R&D costs occur pre-clinical; Average R&D costs of 350 million; average phase 1 enrollment of 10 patients; average phase 2 enrollment of 400 patients; average phase 3 enrollment of 1000 patients; phase 1 lasts 1 year; phase 2 lasts 2 years; phase 3 lasts 3 years; phase 1 in 2011; 12.5% discount from years 2011 through 2017 to account for 1 in 8 chance of success; 365 million milestone payment in 2017; 25% discount 2018 through 2020 to account for 1 in 4 probability of success; NPV of 438.48 million.
    VX-770: NDA 2011; Mkt 2012; 50% discount to account for 1 in 2 probability; about 9.5 million a year in revenue; NPV 12.52 million.
    VX-809: Phase assumptions identical to Alios venture; 50% discount starting 2016 through 2020; NPV of ($67.26) million. I think this is wrong because I think my cost estimates are too high... but I am running with it.
    VX-509: Phase assumptions identical to Alios Venture; phase 2 2011 to 2012; phase 3 2013 to 2015; Phases have 12.5% discount to account for 1 in 8 chance of success; 25% discount 2017 through 2020 to account for 1 in 4 probability; 24.5 million patient market size based on 1% of world population and 35% have access to Rx; 50% market share; Rx cost of $1,200 a year, 100% market penetration; annual market growth of 1.5% based on world population statistical growth in developed countries; NPV $9,155.90 million.
    VX-765: Phase 2 through 2011; phase 3 2012 through 2014; Mkt 2016; 12.5% discount during clinicals with costs according to Alios Venture; 25% discount 2016 through 2020 to account for 1 in 4 probability; 24.5 million patient population similar to VX-509 assumptions; 25% market share; pure guess of $1,200 per year per patient Rx cost; 18.75% total market penetration based on Md visits; 1.5% market growth based on population growth; NPV $1,120.97 million.
    Opex: Additional clinical cost assumptions are included in each relative Rx's NPV; to account for variance start at a base of 600 m in 2011; increase 5% per year; discount 3% per year for inflation; NPV of $(6,361.52) million.
    Total NPV of all net income is $17,121 million. IRR is 16.57%. Projected cash per share, year by year, beginning 2012 is $11.91, $23.60, $35.12, $47.12, $67.13 plus or minus $12.27. Projected cash per share by year ending 2020 assuming no additional capex or acquisitions and all above assumptions are correct, is $460.82 plus or minus $12.27. Bottom line is that there is a lot of money in VX-509... much more than Incivek.

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    • Still buying?

    • Dork,

      No one doubts that you have found the positive CF predictions' bunk and have long said so. The point, though, is that rather than conclusory name-calling, why not provide substantive counter-points and then everyone would benefit. I actually value more pessimistic opinions when supported with data, logic, and information I didn't know or hadn't thought of, as those help me understand the science and hopes (and limitations.) But from what I know and my research, those optimistic views are based on solid estimates--I don't mean the impact on stock value, but rather the estimates that will affect valuation, such as the # of patients in the market, the likelihood of approval, the likely Rx price. I have at times said I think estimates are high or low and that something would be better/worse than predicted and sometimes I change my mind after others explain their reasoning. And I have benefitted immensely from the well-reasoned posts which help me think through this all, even those with which I disagree.

      Obviously, the message Board is not restricted by the demands of civility or the mandates of logic in the making of arguments, but everyone would benefit more if those restraints were self-imposed.

    • >>However, you followed those silly, biased, fantasy land posts on the board. You even commented in some of the threads. But you didn't offer any substantive disagreement on any of them before, so don't call bull$hi+ now.<<

      You can call bull if you like but I didn't suddenly find those posts outlandish. Here's a post of mine from June 23rd where I made fun of the CF projections. I was still a shareholder at that point in time too.

      If the link don't work you can find my post with the search term "blame the refs"

    • Thanks. My little guy's 2 too. Don't forget to give your little one some extra loving today (and every day!)

    • johnf50 Oct 11, 2011 2:29 PM Flag

      Thanks for the info. And I am glad this will benefit your little one. I have a two year old. We often forget what this is really about.

      ~ J

    • The bottom line is this:

      There were many people with hep C waiting for this new medication. When it came out there was a large number of Rx's written. At this point the number of new Rx's will drop off since those who were waiting to be treated are now being treated. In addition, there are new trials of regimens without interferon or ribavirin in the works and those who are not being treated will wait for these new meds. Thus I expect the bloom is over for teleprevir.

    • A few thoughts on your assessment.
      1) I'd put probability for VX770 approval at 90% (not 50%).
      2) VX809/VX661 I'd say 50/50 is fair.
      3) I'd say there is going to be another CF compound in 5 years to FDA that fixes second folding defect (in addition to VX809/VX661, which only fix a portion).
      4) Remember when 809/661 hit market VX770 demand will increase nearly 10-fold (assuming VX770 will be for 10-12% of CF population), but price will then decrease, but not by 10.
      5) Not sure where you got your figures for VX770/809, but if you elaborate (and care), I'll add comments on that. Also, check out message board for older great revenue estimates by thirdme (and great comments by qdelfan, TEC, and several others).

    • agreed..I picked up share as well

    • johnf50 Oct 11, 2011 3:20 AM Flag

      Improvements to my model could easily factor in shorter clinical trial time frames for VX-222; Alios; and VX-809. VX-509 and VX-765 could be extended by two years each respectively. Changing the relevant discounts to 9% to price in 100% success and you end up with a NPV of 10 year net income of 41.359 billion and an IRR of 30.06%. This implies that the stock would triple in value if the market priced in Vertex's complete success of its pipeline.
      As it stands, with historical statistical discounts relevant, the stock is about 29% undervalued. So the stock price for Vertex should be between $52.16 and $107.10 depending on my assumptions. Keep in mind that I assumed a market penetration on the EU territory at 2%. By simply increasing this to 5%... i.e. it would take 20 years to get all the patients... the low figure rises to $70.75 per share. And I am not going to bother with the higher end. All of these figures price in VRUS success.
      The point is, while it may make investors 'feel' better if there excuse is watching US Rx data... the weekly US Rx data is not the lynch pin. It is the unknown volume of EU royalties, the speed (and outcome) in which they bring about Alios clinical data, and the speed (and outcome) of VX-509 trials.
      Based on my model, the NPV of Incivek sales and VX-509 sales is nearly the same. Which is why I have continued to find it amusing that the market is ignorantly pitting VRTX vs VRUS on the HCV battlefield alone. VRUS is all about HCV... that is it. VRTX is about so much more. And honestly, if the Alios venture is not successful... VRTX could likely just buy VRUS - they will have the cash. In fact, at the current sales rate, VRTX will have more cash per share than its current market value before VRUS makes a single dime.
      By year end 2015, two companies will have reduced the HCV market size and taken that money and invested it, three competitors will have brought competing all oral regimens further along in clinical studies, and at this stage, all have the same historical probability of success or failure.
      VRTX will have a ton of cash and be in the application process for another blockbuster. Being that the market likes to price in the complete success of PSI-7997 in phase 2, why not price in the complete success of VX-509 - which is also in phase 2? Point is, VRTX is more the HCV.
      Now I am open to inquiry and critical thinking. The purpose of the message boards is to flesh out the best thinking IMO. Please reply with additions, corrections, or insights. Thanks

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