Vertex Cashes In (VRTX)

Vertex Cashes In

When in need of cash, a pharmaceutical company can either sell off the rights to some of its assets, or pursue some kind of financing. On Tuesday, Rule Breakers pick Vertex Pharmaceuticals (Nasdaq: VRTX ) took the former route, inking a deal to sell its only approved drug to GlaxoSmithKline (NYSE: GSK ) .

Vertex sold its remaining royalty rights to HIV treatment Lexiva for $160 million in cash. Glaxo has been Vertex's marketing partner for the compound since the drug's FDA approval in 2003. Last year, Lexiva helped bring a net $34 million into Vertex's coffers. By giving Vertex $160 million up front, Glaxo will likely save a significantly higher amount of cash between now and the beginning of Lexiva's U.S. patent-protection expiration in 2017.

In 2008, Vertex expects to burn through about $320 million to $350 million in cash. By trading in its Lexiva royalties for $160 million up front, Vertex gives itself another couple of months of cash to burn through at its current rate. In combination with the $750 million in cash and equivalents on its balance sheet at the end of the first quarter, Vertex now probably has more than two years of funds before it will need to pursue another dilutive financing or partnering deal with one of its other pipeline compounds.

Vertex is probably hoping that the monetization of Lexiva will give it enough cash to survive until the phase 3 study result announcements for its hepatitis C compound telaprevir start to roll in. The first of this late-stage data is expected in "the first half of 2010".

If this data is positive, Vertex likely stands to receive millions of dollars in milestone payments from marketing partner Johnson & Johnson (NYSE: JNJ ) . Good study results will also make it easier for Vertex to raise cash on favorable terms in any future dilutive financing.

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Johnson and Johnson and GlaxoSmithKline are active Income Investor picks.

Fool contributor Brian Lawler does not own shares of any company mentioned in this article. The Fool has an A+ disclosure policy.

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