with the new investors over a period of months, he says. They were generally attracted to the company because the risk in Vertex has been decreasing over the past few months. Since it has completed dosing in one of the pivotal telaprevir studies for hepatitis C, the program has been expanded to several opportunities within that disease category, and the company has advanced toward a pivotal trial of a second drug candidate for cystic fibrosis, Smith says.
“Telaprevir has been moving through a subtle, but important, de-risking period in its current Phase III development program,” Russo wrote in a note to clients yesterday. “Combined with competitive positioning that looks even better in recent months, Vertex appears to be on the cusp of multi-billion dollar commercial success in hepatitis C. This has not gone unnoticed by investors.”
Of course, nothing has been stopping those investors from buying shares on the open market, although anybody with enough loot to buy up several million shares at once also can drive up the share price in the process, which undermines their ability to get the best deal. So Vertex gave them the option to buy new shares directly from the company at a relatively slim 56 cent discount to Wednesday’s closing price on the open market.
Selling those shares directly has the benefit of bringing new capital into the company, but usually carries the disadvantage of diluting the value of existing shares and driving down the price. That didn’t happen with Vertex today. After the deal was announced, its shares actually rose $1.14 to $33.70 today at the close. One reason, Smith says, may be that Vertex only was willing to offer the new investors an “undersized” stake, which he hopes will leave these funds hungry to buy more shares on the open market over the next several years.
“If you have billions of dollars under management, and an investment in a company of only tens of millions, it’s not worth your time to track it,” Smith says. “What you want is for them to take a starting position, and to build from there over time.”
