Vertex's True Value Overlooked

| About: Vertex Pharmaceuticals (VRTX)

Vertex Pharmaceuticals Inc. (VRTX) is a global biotechnology company that aims to discover, develop and commercialize innovative new medicines so people with serious diseases can lead better lives. Founded in 1989, Vertex today employs more than 2,000 people at sites around the world. On Tuesday, the company reported earnings for the fourth quarter of 2012. The company gave an overview of current finances and activities as well as discussing the company's advancing pipeline.

Approved Medications and Revenues

INCIVEK® (telaprevir)- is approved for the treatment of patients with genotype 1 hepatitis C virus (HCV), infection. is approved in the United States for the treatment of patients six years of age and older with cystic fibrosis (CF), who have at least one copy of the G551D mutation in the cystic fibrosis transmembrane conductance regulator (CFTR), gene.

In 2012 this drug brought in a revenue of $1.16 billion. Which is slightly better than last years performance of $950 million. 2013 forecast revenue for Incivek has been lowered to 900 million which is slightly down but still remains Vertex's top gainer.

KALYDECOTM (ivacaftor)- is approved in the United States for the treatment of patients six years of age and older with cystic fibrosis , who have at least one copy of the G551D mutation in the cystic fibrosis transmembrane conductance regulator (CFTR), gene.

In 2012 this drug brought in a revenue of $171.6 million. 2013 forecast revenue for Kalydeco are up significantly from a range of $280 to $320 million, due to the late launch of the product in other countries in 2012.

Extensive and Promising Pipeline

1. VX-509 -For Rheumatoid Arthritis-As part of its Phase II evaluation of VX-509 in rheumatoid arthritis (RA), Vertex recently initiated a 40-patient Phase II study in people with RA to evaluate the potential for VX-509 to improve structural joint changes as measured by Magnetic Resonance Imaging (MRI) and markers of inflammation and joint damage measured in joint fluid. The study will also examine a broad range of doses of VX-509 to provide information for future studies. Also expected to be approved by FDA for phase 3 in 2013, VX-509 could be Vertex's most profitable drug.

Pfizer (PFE) has a similar drug already approved by the name Xeljanz last November, which, Timothy Anderson, the pharmaceuticals analyst at Bernstein Research, forecasts annual sales that will eventually hit $2.5 billion.

2. VX-809- In early January, Vertex announced that the combination of VX-809 and ivacaftor for the treatment of people with CF who have two copies of the F508del mutation received Breakthrough Therapy Designation from the U.S. Food and Drug Administration (FDA). Vertex completed an end-of-Phase II meeting with the FDA and has submitted a proposed design for a pivotal Phase III program for the combination to the FDA. While the specific implications of the Breakthrough Therapy Designation cannot be determined at this time, Vertex is in discussions with the FDA regarding the final design of this program and expects to begin pivotal Phase 3 development in the first quarter of 2013, pending regulatory approval.

This drug would contribute significantly to revenues brought in by Kalydeco and is expected to be launching in 2013.

3. VX-222- Telaprevir Twice-daily Dosing-Vertex recently submitted a supplemental New Drug Application (SNDA) for a twice-daily dosing regimen of telaprevir to the FDA.

This drug is an addition and improvement to Incivek and is hoped to correct the slight share loss Incivek is supposed to take in 2013. Vertex has not yet provided details to the value of this drug but seeing how well Incivek is performing, roughly $1 billion in revenue a year, this drug will hopefully perform similarly to the same consumer group.

Spending Signals Green Light for Future Growth

Vertex expects that full-year 2013 R&D expenses will be in the range of $750 million to $790 million. The principal R&D expenses relate to investment in broad development activities for our late-stage CF and hepatitis C programs, including formulation and commercial supply chain investment, completion of Phase II evaluation of VX-509 in RA and investment in research programs aimed at the creation of future medicines. Vertex's 2013 R&D investment is expected to increase over the company's 2012 R&D investment of $718.7 million, primarily related to expenses for increased development and pre-launch supply chain activities to support medicines in late-stage development.

Great Balance Sheet

The company has managed its balace sheet very well for the past three fiscal years, steering clear of bankruptcy, a big problem for pharmaceuticals due to common practice of dumping cash into R&D. The company currently maintains $2,759,288 in assets and total liabilities of $1,760,108 a well maintained balance allowing them to continue all of activities in fiscal 2013 without having to cut on R&D.


As explained above, Vertex holds an extensive pipeline, most of which is already in Phase II. The company continues to bring in great revenues and will soon double or triple that revenue margin in the coming months with the launching of the three new products I mentioned above. The company is undervalued as it is trading down almost 30% since last May, when the company announced Interim Data From Phase II Combination Study Of VX-809 And KALYDECO. Since then the study has been performing well and is expected to launch as a finished product in fiscal year 2013.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.