Vertex Pharmaceuticals: A Multi-Billion Dollar Opportunity

May.24.11 | About: Vertex Pharmaceuticals (VRTX)
The FDA has approved Vertex Pharmaceuticals' (NASDAQ:VRTX) Incivek hepatitis C drug, propelling Vertex into what Goldman Sachs (NYSE:GS) predicts will be a $12 billion market annually.
This is an important drug which cuts the standard treatment time, offers a much-improved cure rate and treats a chronic disease accounting for a significant number of liver disease cases each year.
Previously, hepatitis C patients were treated with interferon and ribavirin alone for 48 weeks. But only 50% of them were cured. Today, Incivek will be given alongside interferon and ribavirin for 12 weeks and then discontinued. Interferon and ribavirin will continue to be given for as little as an additional 12-24 weeks. Despite the shorter treatment period, the cure rate with this combination therapy jumps to an impressive 79%.
Across the United States the Center for Disease Control estimates 3.2 million cases of hepatitis C with about two thirds having the genotype 1 version treated by Incivek. As many as 4.1 million Americans have the Hepatitis C antibody, according to the National Institutes of Health. According to the Center for Disease Control, seven of every 1 million people in the United States are infected annually, resulting in 2,100 new cases each year. At a retail price of $49,200 for the 12-week treatment, new cases alone add as much as $100 million annually to a $157 billion market.
But Vertex's opportunity isn't limited to the United States. Globally, about 3% of the world population is infected with hepatitis C, with the C. Everett Koop Institute estimating 170 million to over 200 million people infected worldwide. Vertex, which owns the North American rights, will collect a royalty from Johnson & Johnson (NYSE:JNJ) on overseas sales, suggesting significant sales and profit growth over the coming years.
And, given arguably better efficacy than the recently approved Merck (NYSE:MRK) competitor drug, analysts suggest Vertex may win up to 75% of the marketplace. To meet the demand, Vertex has 115 sales people ready to market the drug to healthcare providers.
Analysts recognize the upside, estimating Vertex will go from losing money this year to earning $3.83 per share in 2012. Estimates for Vertex's 2012 revenue vary widely, ranging from $1.48 billion to $3.23 billion - not bad for a company just shy of $200 million in trailing 12-month revenue.
Given the drug's success in trials and the wide range of expectations, investors who buy a sell-the-news reaction will find themselves handsomely rewarded as analysts digest future quarters sales data and boost forecasts.
Disclosure: I am long VRTX.