Cramer likes it still on CNBC tonight. That is a pure sign that it is time to sell. Being in the biotech industry, I continually get a kick out of his mispronunciation of some companies and his surface analytics. Really, how could you not know how to pronounce the name of a company if you are talking to management and other industry experts? He talks a good game in biotech but doesn't understand the science or the market. Pure hype. Why would the CFO sell so much if this was going higher. Do you think Cramer knows more than CFO?
If you are new to Vertex, I have to tell you some well known fact. It has been Ian Smith's habit to sell into rallies for many years. He sold at 30s and also at 40s. It appears as if he is more concerned about cash in his pocket than shareholders. Do you think he sold at 30s because he knew that the share price would go below 30? I think that in the near term the share price would correct somewhat since it ran up a lot in a short time span. But many of us old-timers look beyond the immediate future, and speculate the share price two or more years from now.
It is true that Jim Cramer does not understand biotech sector as well as he does the retail or oil sector. But he has some good people working for him. Adam Feuerstein is one. AF gathers information given by good analysts. AF thinks that the sales from corrector/potentiator combination for 508 mutation will top 5-6 B/year easily, and Vertex will enjoy monopoly of selling them. Because of this he thinks that the Vertex' position is better than Gilead's.
6 B figure is still too conservative if 809 or 661 is safe to be dosed for a long term as data indicates so far.
Cramer uses the cost of 809/770 combo to be 200k/year, but of course, the price tag for 770 alone is 300k/year. Even if you take the 200k figure, there are 50 thousand people with 508 mutation worldwide. If you multiply 200k by 50k = 10B without including people with 770 treatable mutations.
Today's news on the potency of VX-135 on HCV GT 1, 2, 3, and 4 is impressive -- it is better than that of GS-7977. No wonder Bristol decided to have their treasure BMS790052 to be tested in combination with 135. If the two Phase ii trials go well, there is a tremendous opportunity.
If you think that the government, private payors and European social care are going to cough up $200k - $300k per year, every year, for each patient, you are going to be severely disappointed. If and when the CF compound get approved 2-3 years down the road, the reimbursement landscape will dictate uptake. Unlike other compounds to treat cancer, the Vertex compounds are for treatment of a chronic condition. The healthcare reform will not have the appetite to spend $1 million every 5 years for a patient on treatment. Private payors will seek annual reimbursement that is 1/20 of this model and premiums will reflect that. So most people will be forced into a federal program. Let's say that the lifespan of a CF patient is extended beyond 35 years with the drug. Since CF newborn screening is now mandated, that means for the first 12-15 years post approval(assuming patent protection length), each CF patient will cost $4-$4.5 million to treat at $300k/year????? And that is just for their initial 15 years of treatment while the drug is patent protected!! No way!!!! For how much improvement??
With regards to Smith's sales, he has never taken anywhere near this much off the table in the past. This is a telling call by him.
If they thought there was upside from here, they wouldn't sell. As is the case with any investment, you weigh the upside potential versus downside risk and make judgment calls. The guy who intimately knows the financial outlook just made that judgment call and it speaks volumes.
Date Insider Shares Type Transaction Value*
Apr 18, 2013 SMITH IAN F
Officer 745,685 Direct Automatic Sale at $81.50 - $85 per share. 62,078,0002
Apr 18, 2013 SILVA PAUL M
Officer 22,549 Direct Automatic Sale at $81.50 per share. 1,837,743