In a deal valued at $545 million, Vertex Pharmaceuticals Inc. signed on with Janssen Pharmaceutica NV to develop and commercialize its hepatitis C virus protease inhibitor, VX-950.

Janssen, a unit of New Brunswick, N.J.-based Johnson & Johnson, will have exclusive rights in Europe, South America, the Middle East, Africa and Australia, while Vertex will hold onto commercial rights in North America. Each company will be responsible for drug supply in its territories.

Cambridge, Mass.-based Vertex's stock (NASDAQ:VRTX) jumped 14.6 percent, or $4.68, on Friday to close at $36.71.

Andrew McDonald, an analyst with San Francisco-based ThinkEquity Partners LLC, maintained his "buy" rating and a $50 price target for the stock

"This deal not only ensures Vertex will have the resources to see VX-950 through commercialization, but also provides rich rewards to the company on sales outside North America," he stated in a research note.

Under terms of the deal, Vertex will receive a $165 million up-front payment, as well as up to $380 million in milestone payments based on the successful development and launch of VX-950 in Janssen's territories. It also is entitled to a tiered royalty in the mid-20 percent range on all sales in those countries, and Janssen will take over responsibility in its region for certain third-party royalties, which typically are in the small single digits.

Joshua Boger, Vertex's CEO and president, said the deal will "maximize the global reach and opportunity" for VX-950.

"We have joined forces with a great company," he said in a conference call, "one that recognizes and validates our enthusiasm and hope for VX-950."

Vertex remains in charge of VX-950's global development plan, while another J&J company, Tibotec Pharmaceuticals Ltd., will lead development and commercialization for Janssen. Vertex also expects to be reimbursed 50 percent of its drug development costs incurred for VX-950.

The drug is an oral inhibitor of hepatitis C virus protease, an enzyme essential for viral replication, and is one of the more advanced agents in the field, Vertex said. Clinical results have demonstrated antiviral activity and no serious adverse events. In May, Vertex laid out plans for a three-study Phase II program expected to enroll about 1,000 patients in the U.S. and Europe. The first one, PROVE 1, began that same month in the U.S., while PROVE 2 is being initiated in Europe.

Worldwide, about 170 million people are infected with HCV, making it "a major public health threat," Boger said. The liver disease is spread through direct contact with the blood of an infected person and can cause symptoms such as jaundice, abdominal pain, fatigue and fever. Current therapies provide sustained benefit in only about half of patients with genotype 1 HCV, the most common strain.

Both Janssen and Vertex hope the need can be addressed by VX-950, making the therapy a "future cornerstone of HCV treatment," Boger said.

By working with J&J, Vertex gains access to the company's 23 manufacturing facilities in 11 countries, enabling it to diversify the supply risk.

"These strengths in manufacturing will be important as we near commercialization of this product worldwide," said Victor Hartmann, Vertex's executive vice president of strategic and corporate development. Hartmann noted that the Janssen offer "was not the strongest financial offer," but the "chemistry was right" between the companies.

In his research note, McDonald agreed: "We enthusiastically commend Vertex for this deal, particularly because motivations of both parties are aligned," he said. "J&J provides critical manufacturing and commercialization capabilities."

McDonald forecasts 2011 worldwide sales of VX-950 to reach $1.14 billion.

Mitsubishi Pharma Corp., of Osaka, Japan, has rights to the product in Japan and certain Far East countries. It plans to begin clinical development in the second half of this year.

With Tibotec, Vertex is establishing a global health initiative directed at developing countries to increase the prevention, diagnosis, treatment and cure of HCV infection. The initiative will be supported by both Vertex and Tibotec if VX-950 is approved.

As of March 31, Vertex had $339 million in cash, cash equivalents and marketable securities, and a burn rate in the first quarter of $22 million.

With the up-front payments from Janssen, and a reduced burn rate due to the 50 percent reimbursement of development expenses for VX-950, McDonald believes Vertex will be able to take VX-950 to commercialization "without additional financing." Aside from VX-950, the company also is developing VX-702 for rheumatoid arthritis. The drug met its primary endpoint in a Phase II trial in March. (See BioWorld Today, March 10, 2006.)