By Randall Osborne

West Coast Editor

With seven potential products in Phase II trials, Vertex Pharmaceuticals Inc. said it plans to fuel their development by offering $200 million in convertible subordinated notes to institutional buyers - and will call for redemption next month of $175 million worth of convertible subordinated notes issued earlier.

Cash is a "strategic asset" for the company, as it explores multiple ways at once to "exploit the opportunity of the human genome," said Michael Partridge, spokesman for Cambridge, Mass.-based Vertex. The company had $378 million as of June 30.

The new notes, due (like the earlier ones) in 2007, would be convertible into common stock at the holder's option. Vertex said it will file a registration statement for resale of the notes, and the shares of stock issuable on conversion, within 90 days of the offering's closing, which is expected later this month.

Proceeds will fund clinical trials, preclinical studies and research and development, as well as working capital, general corporate purposes and investments in technologies to further an approach called "chemogenics," which uses structural similarity of targets in the same family, such as kinases.

"It's parallel drug design, on multiple targets simultaneously," Partridge said.

Kinase research is the focus of a potential $800 million chemogenics deal signed earlier this year with Novartis Pharma AG, of Basel, Switzerland. Vertex has another agreement, expanded last year, with Aventis SA, formerly Hoechst Marion Roussel AG, of Frankfurt, Germany, to develop HMR 3480/VX-740, an orally active inhibitor of interleukin-1 beta converting enzyme, for three different indications, one of which is rheumatoid arthritis. (See BioWorld Today, Sept. 2, 1999, p. 1, and May 10, 2000, p. 1.)

Regarding the earlier notes, Vertex said it expects to mail on or before Sept. 15 a notice to call for redemption in October. The company had planned to offer $200 million worth in the spring, Partridge said. (See BioWorld Today, March 6, 2000, p. 1.)

"We raised $175 million, the most we've ever raised in one offering," Partridge said. "This was the second week in March, right when the biotech market was just turning [down]. After that, there weren't any offerings done."

Until redemption time, holders may instead convert their notes into common stock. Vertex noted that, given the current price of the shares (NASDAQ:VRTX), which closed Monday at $74.11, down $12.08, conversion is more likely than redemption.

Holders opting to redeem will get $1,000 per $1,000 of the principal amount of the notes, plus interest and a "make-whole" payment of $82.14 per $1,000, or $14.4 million in total.

Those who convert, on the other hand, can get shares at a price of $40.32 per share, or about 24.8 shares per $1,000, after adjustment for the 2-for-1 stock split paid in the form of a dividend in August.

Converting all the notes would mean Vertex will issue about 4.3 million shares of common stock, which would give the company about 58.3 million shares outstanding. In the much less probable event that no shares are converted, Vertex will pay redemptions of $175 million, plus interest, in addition to the $14.4 million make-good amount.

"We intend to redeem following the first interest payment, which is on Sept. 14," Partridge said. "That allows us to reduce the make-whole payment." Vertex posted revenues of $61.65 million last year, with a net loss of about $41 million, or $1.61 per share. The company's first approved product is Agenerase (amprenavir), an HIV protease inhibitor, co-promoted by London-based Glaxo Wellcome plc.

Among the drugs in Phase II trials, "probably the drug closest to entering Phase III is VX-175, a pro-drug of Agenerase," Partridge told BioWorld Today. "It's more compact dosing. There may be some other clinical benefits we can establish as well, but that's the most obvious feature."

VX-175 is expected to enter Phase III studies by the end of the year, Partridge said. Close behind it in the pipeline is VX-497, for hepatitis C, being tested with interferon-alfa. "It's an inhibitor of an enzyme that regulates guanine nucleotides, which cells use for proliferation and infecting cells use for replication," Partridge said.

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