Vertex: The Next Full-Fledged Multinational Pharma?

| About: Vertex Pharmaceuticals (VRTX)
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Yesterday, the FDA approved Incivek (telaprevir), Vertex’ (NASDAQ:VRTX) HCV protease inhibitor, which demonstrated in clinical trials it cures more treatment-naïve patients and more patients who did not benefit from conventional treatments in much less time than Merck’s (NYSE:MRK) Victrelis (boceprevir).

Less than a month ago, the FDA Antiviral Drugs Advisory Committee voted 18-0 to recommend approval Incivek for HCV patients with genotype 1 chronic hepatitis. The recommendation was based on clinical trial data demonstrating that combining Incivek with pegylated interferon/ribavirin produced a higher cure rate in less time than standard therapy alone. This improvement is most notable for hard-to-treat patients including those with HCV genotype 1, people with liver cirrhosis, and those who did not respond to a prior course of conventional. Merck's drug Victrelis (boceprevir) also an HCV protease inhibitor, was given a positive recommendation and was eventually approved.

When we wrote our article “No Serendipity in Vertex’ Achievements,” posted on March 4 (here), we meant that Vertex did not discover Incivek, but created the novel therapeutic from the scratch based on its determination to design a drug, which inhibits the hepatitis C virus (HCV) NS3.4A protease. This target is considered one of the most attractive targets for anti-HCV therapies.

This fact was extremely hard to achieve, as designing potent and selective small molecule inhibitors of HCV NS3.4A protease as oral therapeutic candidates have been plagued with problems, especially a shallow substrate-binding groove of this protease. It needed genius drug design capability to overcome many hurdles on the road to developing such potent molecules. Vertex and Eli Lilly (NYSE:LLY) had to do an extraordinary job to overcome the hurdles and create the novel, potent, selective drug Incivek with favorable pharmacokinetic profile and excellent antiviral activity. The drug has rapidly reduces the plasma HCV load of patients chronically infected with the genotype 1 virus. (Read abstract here.)

We should not overlook Vertex’ proven technological capability. The approval of its HCV drug, the expected near-approvals of the Cystic fibrosis drug and the promising results from clinical trials of its drug for treatment-resistant epilepsy have brought Vertex nearer than ever to the realization of its dream of becoming a full-fledged multinational pharmaceutical company.

What does anybody do after the approval of a drug that is hailed by the medical community and the FDA itself? Cited by Bloomberg and others was what the FDA Commissioner Margaret Hamburg said about the two newly approved HCV protease inhibitors: “These are two new innovative products that are worthy of notice and will make a difference, literally saving lives.”

Based on the fact that Vertex’ Incivek’s efficacy data is superior to Merck’s drug Victrelis, analysts believe that Vertex’ HCV drug may generate over $2 billion in 2013 and increasing. Add to this amount the revenues of Vertex’ HIV drug, Cystic fibrosis drug and the value of the rest of the firm’s pipeline, and Vertex’ revenues could stretch to around $2.8 billion in 2013 and increase over the years with more sales and more product approvals.

We are value long-term investors. We believe that valuable firms like Vertex should reside in serious investors’ portfolios. The best bet for value investors is to close their eyes for five years (Buffett’s style) and see whether the stock will be a next Amgen (NASDAQ:AMGN) (market cap $55 billion), a next Gilead (NASDAQ:GILD) (market cap $30 billion), or a next Biogen Idec (NASDAQ:BIIB) (market cap around $22 billion). Needless to say,Vertex’ market cap now is around $11 billion.

Disclosure: We are long Vertex.