From my view, Vertex should announce soon a re-structuring process that will serve as a catalyst for WS to believe that the company is serious about focus and return of investment. To do that they should clarify the clinical assets and programs that will be a key priority for the next 2-3 years for value creation, and which assets will be placed on hold or will be sold/licensed. In addition, they should announce some re-structuring of Research to cut additional expenses. It should be very feasible to cut $50-75 million from research (e.g. cut the UK site, cut the Canada site and reduce investment at Boston and San Diego) and save $150-$200 million in clinical development programs.
I did not listened to the CS Presentation, but my educated guess is that:
1.- They need to cut the burn rate at least $200-$300 million/year for 2013-2014, to account for lower Incivek revenues. The best way to do this is cutting clinical programs, and "hopefully" reduce part of the ongoing research in areas that are way to early to generate any value.
2.- The key focus for clinical development will be the CF programs and the all-oral treatments for HCV in partnership with other companies. Anything else is secondary and will be sold/licensed or will be placed on hold. This means, to cut any additional HCV trial that employs interferon, that is wasted money.
3.-VX-787 - Vertex doesn't have the capacity to pre-pay costs for the production of a stockpile for VX-787 that will be reimbursed only after a pandemic happens and only after broad use by the government. So, this program is not going anywhere at Vertex and I don't think anyone will buy it. This is an asset with no value.
4.- VX-509 - Vertex doesn't have the capital and/or bandwidth to advance this program into phase III alone. Until when a partner comes that will cover most of the expense, this molecule will be on hold without clinical progression. This is a high value asset but will be interesting if Vertex can capitalize its value properly. It is an open question how much value will be realized from this asset.
This is clearly the direction they are headed. He indicated today they are down to 2 programs: CF and all-oral HCV. I would hope that vx-778 and vx-509 could be sold, but I suspect that at least 778 has failed. To not mention it when they've promised data this quarter sounds too much like the epilepsy program to be optimistic.
Ian Smith is under pressure to get the company cash flow neutral in 2013 and that's a tough task. His language indicates Incivek revenues are falling off a cliff and I would expect them to come in at the low end of the full year $1.1 to 1.25b guidance. He stated they are struggling to get European reimbursement for Kalydeco and expected that to occur in stages during 2013; in other words it not happening soon. That means drastic r&d and sales cuts.
The reality is the all oral HCV program is a long shot given where they are in relation to GILD and ABT. So the entire company rests with the results of the 2 CF combo trials. A really stunning turn of events.
I think Ian Smith gave an honest assessment of the financial outlook for the company and it was sobering. I believe he limited his remarks to just the hepatitis C and cystic fibrosis programs because they will be the only revenue generators over the next couple of years. I do not think it indicates VX-787 and VX-509 are failing. He emphasized the importance of the Incivek revenues to the company but went on to say that he expected Incivek sales to continue falling and that Kalydeco sales would not fully compensate for this lost revenue. He also said they would be looking closely at their SG&A expenses which probably means they are concerned about the cash flow and "burn rate." The bottom line seems to be that the next couple of years will be challenging and they will probably continue to lose money until they can get the VX-809/Kalydeco combination on the market. It is likely to be a rough ride with respect to the share price but I believe the long term outlook is good.