Q: What do they do?

A: Several things, but the focal point is that they now have a product in advanced clinical trials, Telaprevir, which will soon be available to treat hepatitis C, which is a chronic condition that manifests itself in a variety of ways but does so very, very slowly over a period, in many cases, of decades. If you look at current treatments, their efficacy in many cases is no better than a coin toss. What is very appealing about Telaprevir is that here you have a drug that will offer substantially better critical outcomes, potential cure rates in excess of 75%, in a much shorter treatment period. Further out, Vertex has some very interesting potential to treat cystic fibrosis. I think Telaprevir is going to be on the market within the next 18 months or so. At that point, there is an opportunity for the company to earn $7 a share, compared with the losses they are reporting now. The stock is trading around 40, but could rise to 60, even 70, within 12 months.

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.

1:30

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.

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