Possible new drugs

Pete Najarian has spotted some unusual options activity. He speculates that call buying in Vertex Pharma (VRTX) could mean it’s a takeover target -- with JNJ (JNJ) rumored to be sniffing around.

Takeover targets are wide ranging and include Biogen [BIIB], Amylin (AMLN), OSI Pharma [OSIP], and Vertex Pharma [VRTX], says Huckman.

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Pfizer (PFE) and Schering-Plough (SGP) continue to invest in R&D, but have battered shares, so they outrank Wyeth (WYE). Regeneron Pharmaceutical (REGN) rates higher than more richly valued biotechs like Amgen (AMGN) or Vertex Pharmaceuticals (VRTX). The idea here is inspired by the value-investing tradition: Buy a dollar of research for fifty cents.

Not all of the focus is on products already in the market, however. Vertex Pharmaceuticals (VRTX), another company that some investors view as an eventual takeover candidate, is developing Telaprevir, a substance that promises to reduce the time needed to treat hepatitis-C, a potentially fatal liver ailment. Telaprevir is currently in stage III testing, the last phase of the clinical- trial process. Vertex has worked with Johnson & Johnson (JNJ) in developing that drug.

Market Perform - Price 32.96 on June 10
by Rodman & Renshaw

Telaprevir [looks like] the most promising therapy for hepatitis-C in development....With headline risk in next six to nine months from competitors' [advance], we believe VRTX shares will perform in line with biotech indexes. Reiterate our Market Perform. Market cap: $4.6 billion.

Vertex (VRTX) was upgraded to Outperform at Cowen and Company. Recent results with VRTX's protease inhibitor telaprevir is likely to have a role in treatment experienced HCV leading to more potential for upside.

Vertex Pharma (VRTX) was upgraded from Underperform to Market Perform, Wachovia said. Major potential threat to telaprevir is now behind the company.

Vertex Pharma (VRTX) was downgraded from Buy to Hold, Citigroup said. $25 price target. Company lacks potential catalysts in 2008, and competition is heating up for telaprevir.

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