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HCV Protease Sales/Vertex ALS2200 Future
  excerpted from financial company William Blair & Co report on healthcare by Y. Katherine Xu, and Ph.D. Filippo Petti

Vertex might stage a comeback in HCV with its potent nuke ALS2200; we believe ALS2200 containing all oral regimens could provide a second wave to the Vertex HCV franchise in 20162017 and beyond. Vertex is currently conducting 12-week studies of their potent nuke compound ALS-2200 in combination with ribavirin or Incivek to build a sizable safety database. Should the 12-week safety be satisfactory, the company might partner ALS-2200 with other classes of direct anti-viral agents (DAAs) from other companies that are in late-stage development and whose safety profiles have been well characterized. Potential partners could include TMC435 from Tibotec/Johnson & Johnson, and daclatasvir from Bristol-Myers Squibb.. This way Vertex can have at least 50% economics in winning HCV combos that will compete with the leaders Gilead and Abbott in the HCV race. We expect 12-week safety data and potential partnership announcement in early 2013. Should such partnerships be established, we may raise our estimates for the HCV franchise in the out years significantly, which will lead to higher valuation for the franchise.

We lowered our third quarter Incivek U.S. sales estimate from $278.6 million to $232.7 million (16%), versus consensus at $272.4 million, based on IMS data that total prescriptions (TRx) written during the quarter declined 23% (exhibits 1 and 2).

· The average weekly TRx for Incivek during third quarter 2012 fell to 1,197, compared to 1,558 (23%) for second quarter 2012, according to IMS Health (exhibit 2). Weekly TRx levels for Incivek have continued to decline considerably throughout 2012. Merck's (MRK $46.48) Victrelis weekly TRx followed a similar path in the third quarter after remaining flat for the first half of 2012, recording a weekly average TRx of 873 compared to an average of 1,000 for the second quarter.

· Relative Rx market share for Incivek is down slightly quarter over quarter to 58%, and patient share fell to 70% during third quarter. After reaching a peak market share of 80% of TRx in third quarter 2011, Incivek's average weekly TRx share has been steadily declining against Victrelis. For third quarter 2012, the Rx share for Incivek is approximately 58%, down from 61% during the second quarter. The average number of scripts per patient is 9 for Victrelis, versus only 3 for Incivek; as a result, it is misleading to only examine the TRx share. The market share by patients, by our estimation, is approximately 70/30 for third quarter 2012 favoring Incivek; the patient share fell from the peak of roughly 85/15 favoring Incivek in third quarter 2011.

· On September 1, Vertex increased the price for Incivek by 5%; a full 12week course of Incivek now costs approximately $55,300. We incorporated the updated price of Incivek into our third-quarter estimates, and continue to assume a gross-to-net conversion of 84%. In April 2012, Vertex raised the price of Incivek by 7% from its launch price of $49,200 per course of treatment.

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