After four follow-on stock offerings in the last three years -- the number of shares outstanding has increased a whopping 57.8% since the end of 2005 -- it's nice to see that Rule Breakers pick Vertex Pharmaceuticals
Vertex licensed its phase 3 hepatitis C drug telaprevir to Johnson & Johnson
Rather than waiting until April 2012, which is when it estimates it will get that money, Vertex is planning to sell its rights to those payments in exchange for a smaller payment made now. Vertex may be acting like Wimpy -- "I'll gladly pay you Tuesday for a hamburger today" -- but in drug development, cash is like Popeye's spinach and it seems like a good move.
This isn't the first time that Vertex has monetized future revenue. Last year the drug company released GlaxoSmithKline
Telaprevir is in a heated race with Schering-Plough's
It'll be interesting to see how much Vertex can get for the milestone payments with the phase 3 trials still ongoing. In addition to discounting the lost interest on any cash paid to Vertex, the entity that buys the rights to the milestone payments is taking on the risk that telaprevir will not have a marketing application filed or get regulatory approval, so it will have to discount that, too.
If Vertex cannot get a large enough payment, it might make more sense for it to wait until after the phase 3 trials are complete to try this again. Either way, it's certainly creative in raising cash.
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Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. Johnson & Johnson is a selection of the Income Investor newsletter. The Fool has a disclosure policy.