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Vertex Pharmaceuticals: The Next Big Thing?

|Includes: Vertex Pharmaceuticals Incorporated (VRTX)

A very interesting company in the biotech space for investors trying to identify the next big successful player is Vertex Pharmaceuticals.  (Symbol VRTX)

The Cambridge, Massachusetts based company aims for big breakthrough treatments for major indications--and thus if it succeeds could move quickly from development stage biotech to major commercial enterprise.

The company currently has a market cap of about 8 Billion dollars and has about 200 million shares outstanding.  Revenue last year from collaborations and rights agreements totaled 143 Million, although the company's huge budget for research and development to date has precluded earmings.

The question, as always for biotechs, is "When do the approved products come and start profitability?"

The answer for Vertex could be "Very soon".

The company has not one, but two major drugs that could quickly become cash cows and make the company the real deal.

First is Telaprevir, the company's most advanced product candidate.  Telaprevir is a new type of treatment for Hepatitis C.  The Hep C market is huge--some analysts estimating it at around 10 Billion dollars annually.  A Goldman Sachs report recommending Vertex predicted Telaprevir might capture as much as 80% of the treatment failure market for the disease.  The company reported excellent Phase III results for the drug, has submitted a licensing application to the FDA, received accelerated review and has a decision date in May.  Telaprevir involves a course of treatment that is only half as long as the usual treatment regimen and thus is very appealing to patients.  
Although FDA approval is never a sure thing, Vertex is very confident in the success of Telaprevir and has hired 200 additional employees to be able to fully prepared for the drug's launch immediately upon approval.

Second is the drug designated VX-770, which is a novel treatment for cystic fibrosis.  Phase II results were extremely promising and the company is awaiting Phase III registration results.  If the drug succeeds in the trial early this year,  the company expects to file applications for approval both in the US and Europe in the second half of 2011.

The bottom line is that the company looks to be rapidly approaching the biotech promised land--Profitability!   Guidance is for the company to be cash flow positive in 2012.  From that point on there is every opportunity for Vertex to be a true global force.

As of yearend 2010 the company was sitting on over a Billion dollars in cash.

Furthermore there is a rich pipeline with  promising drug candidates for treating epilepsy and rheumatoid arthritis.

Recently shares have traded in the high 30's with a 52 week high of 43.94.  With the FDA decision date on May 23, the shares should start to see accumulation and a rapid rise upon approval.

This is not a one trick pony, but a company that has proceeded the slow, steady, guided by the science route--building a portfolio of potential blockbuster drug candidates--and it seems about to pay off.