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Vertex Monetizes Incivo Royalty

Zacks Equity Research

Investors reacted favorably to Vertex Pharmaceuticals Incorporated’s (VRTX) announcement regarding the monetization of Incivo royalties. The company said that it has sold its product royalty rights to its hepatitis C virus (:HCV) treatment, Incivo, to partner Janssen Pharmaceutica N.V., a Johnson & Johnson (JNJ) company.

Vertex Pharma will receive a cash payment of $152 million from Janssen this quarter. Royalty payments will cease from next year. Vertex Pharma’s collaboration agreement with Janssen for Incivo covered the development and commercialization of the candidate in Europe and other territories. With the sale of royalty rights, Janssen will be entirely in charge of marketing and promoting Incivo in these territories. Currently ongoing studies will continue as planned. Incivo is available in the U.S. under the trade name Incivek.

With the monetization of Incivo royalties, Vertex Pharma now expects its cash, cash equivalents and marketable securities balance to cross $1.4 billion at year-end.

Our Take

This deal is in line with Vertex Pharma’s efforts to move away from its HCV franchise and focus on the cystic fibrosis franchise. The company’s performance lagged expectations in the last two quarters mainly due to the rapid decline in Incivek sales and the increasing competition in the HCV market. Last month, Vertex Pharma had announced a restructuring plan in response to the poor performance of Incivek and the increasing competition. The company said that it would cut down 15% of its total workforce (370 positions) with the job cuts being focused on positions related to the promotion and development of Incivek.

With patients awaiting new treatments, Incivek/Incivo revenues will remain under pressure. In such a scenario, the monetization of Incivo royalties makes sense. The $152 million cash inflow should come in handy for the company’s cystic fibrosis pipeline development efforts. Shares were up about 4.4% on the news.

Vertex Pharma currently carries a Zacks Rank #3 (Hold). At present, companies like Actelion Ltd. (ALIOF) and AMAG Pharmaceuticals, Inc. (AMAG) look well-positioned with both carrying a Zacks Rank #1 (Strong Buy).

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