Calls of Note Part 4

- Merrill Lynch comments on Vertex Pharma (NASDAQ:VRTX) saying the co is expected to provide updates on VX-950 (telaprevir) at the upcoming EASL meeting. The late breaker abstract by McHutchison et al., on Saturday, April 14 will receive significant scrutiny as it provides a 12 week post therapy update for PROVE 1. While the firm is not surprised by declines ahead of EASL, they consider the current sell-off to be overdone, especially if strong efficacy from 12 week triple therapy + 12 week dual therapy could be disclosed in H2/2007.

While they cannot rule out further declines, they believe current levels represent an opportunity for patient investors. MLCO believes that the stock could recover to the low-mid $30's in near term given a combination of strong PCR negative rate approaching 75% and no meaningful changes in the trends for safety/dropout rates, with the potential for further appreciation in the next 12 months pending strong data from the 12+12 arm.

Firm recommends buying April US$30.00 call options ahead of the follow-on PROVE 1 data as a way to enter into a stock position for the long term while hedging downside risk.

Notablecalls: I'm somewhat surprised to see such a sell-off in VRTX. Clearly, the co is a takeover candidate for big pharma. I like this call.