Can Vertex Catch Lightning in a Bottle Again?

Sep.21.11 | About: Vertex Pharmaceuticals (VRTX)
Back in May, the FDA approved Vertex's (NASDAQ:VRTX) Incivek for the treatment of Hepatitis C genotype 1, a hard to treat disease with a 6% cure rate only 20 years ago. With a price tag near $50,000, and a cure rate between 65%-75%, Incivek generated some $75 million in sales the first five weeks on the market.
But can Vertex expand beyond Incivek?
Cystic Fibrosis ("CF") is a rare, global disease with a poor prognosis. It's diagnosed in about 1 in 2000-3000 births in the EU and 1 in 3,500 births here in the United States. Overall, about 70,000 people suffer from the debilitating disease worldwide.
As recently as the 1980s, children diagnosed with CF would be lucky to make their tenth birthday. Today, medical advances, such as vests designed to loosen mucus in the lungs, help patients live into their 20's and 30's. Adults make up about 40% of all those with CF, in stark contrast to a disease once strictly resigned to childhood.
Vertex thinks it can help patients live even longer. Its VX-770 drug has completed Phase III trials and a new drug application should be filed in early Q4 with the FDA. The company also plans to file for the drug's approval in the EU.
If approved, the drug will treat about 4% of CF patients, those with a very specific gene mutation. And, Vertex is already hiring the marketing and sales team necessary to reach all of them. The company plans to bring on as many as 500 people in support of getting the product in patient's hands over the coming three years. Across the entire CF population, about 3,000 patients will qualify for the treatment, 1200 of which are here in America. At a price which could reach as high as $100,000 to $200,000 annually, U.S. sales could increase Vertex revenue by $120-$240 million.
For patients with the genetic defect, the treatment offers significant hope. Most patients end up losing lung capacity as they age; yet VX-770 patients saw a 16.9% relative improvement from their baseline lung function versus the placebo. And, lung capacity gains remained constant through week 48.
While the study tracked CF patients who were 12 or older, an additional, and so far encouraging Phase III study, treats children as young as six. Further, the company is in Phase II trials of VX-770 in combination with VX-809, which treats all patients with the most common CF gene mutations. This study has found statistically significant reductions in sweat chloride, without serious adverse events. If the study progresses similarly, it could mean a much larger market for Vertex.
And what about beyond VX-770?
Vertex is also seeing positive trial results for its VX-509 drug, used to treat rheumatoid arthritis ("RA"), which affects about 1.5 million adults in the United States.
In a Phase 2a study, 66% of patients taking a twice-daily 150mg dose and 65% of those taking a 100mg dose saw a 20% or greater improvement in signs and symptoms. Only 29% of those on placebo saw such gains.
Competitors also have similar drugs for RA in their pipeline, including Pfizer's (NYSE:PFE) tofacitnib. But VX-509 hasn't shown any decrease in white blood cells, which could give Vertex an advantage. The overall market for RA drugs is expected to be in blockbuster territory, well above $1 billion a year, which suggests plenty of room for Vertex to carve out growth.
For investors sitting on the sidelines worried Vertex doesn’t have opportunity beyond Incivek, market potential for its VX-770 and VX-509 provide incentive to buy shares into quarter end volatility.



Disclosure: I am long VRTX, PFE.