Why Vertex Pharmaceuticals Inc. Shares Skyrocketed

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Vertex Pharmaceuticals (NASDAQ: VRTX  ) , a biopharmaceutical company focused on discovering small-molecule compounds to treat serious and rare diseases, scorched higher by as much as 48% this morning after announcing positive results from two phase 3 studies involving the combination of VX-809 and Kalydeco as a treatment for patients with cystic fibrosis (CF) who have two copies of the F508del mutation, the most common form of CF.

So what: According to its early morning press release, all four treatment arms in the 24 week-long studies demonstrated a statistically significant improvement in forced expiratory volume in one second, also known as FEV1, with both studies, TRAFFIC and TRANSPORT, meeting their primary endpoint of absolute improvement in percent predicted FEV1. As the results show, mean absolute improvement in percent predicted FEV1 was between 2.6 and 4 percentage points from baseline compared to placebo with mean relative improvements of 4.3% to 6.7%.

The combination also delivered a number of improvements based on predefined secondary endpoints, including statistically significant reductions in pulmonary exacerbations and statistically significant improvements in body mass index and the proportion of patients with a minimum 5% improvement in percent predicted FEV1. Following its positive data, Vertex announced plans to file a new drug application in the U.S. and a marketing authorization application in Europe in the fourth quarter.

Now what: Since losing hepatitis C blockbuster drug Incivek to more effective competition Vertex has done a good job of pushing the company into the largely unmet field of CF treatments. Including sales of Kalydeco and this combo, analysts project that peak annual sales potential could be in the billions. With the U.K.'s National Genetics and Genomics Education Centre estimating that 76% of all CF cases express the F508del mutation, it's quite possible Vertex could hit Wall Street's lofty sales targets.

While nothing is ever for certain when the Food and Drug Administration is involved, I'd suggest that Vertex's CF combo therapy has a better than 50-50 shot at approval, but it'll still be up to Vertex to successfully price and commercialize its therapy. It did a great job with Incivek, but will need to repeat that quick success with VX-809 and Kalydeco if it hopes to maintain its current $22 billion valuation.

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  • Report this Comment On June 24, 2014, at 5:24 PM, bipy22 wrote:

    " better than 50-50 shot at approval " ???

    That's anywhere from a 50.1% of being approved to a 100% chance. Any more precision would be appreciated.

  • Report this Comment On June 25, 2014, at 2:26 AM, politicaljules wrote:

    The results were not a home run for this Cf drug. This is not a victory by any definition!! There was barely a modest rate of lung-function improvement (2.6% to 4%). A patient with Cf would not even notice.

    The lung function benefit was much lower than the improvements given for established Cf treatments such as hypertonic saline and pulmozyme! Those drugs are a fraction of the cost of what Vertex is getting away with.

    I don't think Vertex should be able to charge Kalydeco ($300K) kind of pricing w/ this drug combo. That is criminal. Only a fool would not look beyond the surface of what is happening here.

    And the Cf foundation is quiet.

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