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Another Trial, Another Positive Result

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Two clinical trials; two positive results. Not bad Vertex Pharmaceuticals (Nasdaq: VRTX  ) , not bad at all.

Last month, the company announced that its cystic fibrosis drug VX-770 worked in adults and older children, and yesterday followed it up with successful results in younger children.

In the most recent trial, patients taking VX-770 improved their lung function by 12.5%, while those taking placebo got worse. Clearly the drug works, although I'm not sure there were many people expecting anything else.

VX-770 only works on a subset of cystic fibrosis patients -- about 4% -- but presumably Vertex will be make up in price what it lacks in volume. The company plans to file for Food and Drug Administration approval in the second half of the year, putting a decision in the first half of next year.

Given the data so far, an approval seems highly likely. The drug works. Patients need it; antibiotics like Novartis' (NYSE: NVS  ) Tobi or Gilead Sciences' (Nasdaq: GILD  ) Caysto only treat the symptoms. The safety record looks fine. You really can't ask for much more.

Vertex seems to have a knack for developing that kind of drug. Its hepatitis C drug telaprevir also treats an unmet need with a stellar safety and efficacy profile. Telaprevir heads in front of a FDA advisory committee meeting next month, but expectations are that it's more of a formality than anything else.

Two great drugs, and yet, I'm still not buying. I wish I'd bought back in 2005 and 2007 when the Motley Fool Rule Breakers newsletter recommended it, but at this point the potential rewards don't look good enough to take on the risk of the FDA throwing the company a curveball.

Vertex's market cap is hitting $10 billion. To put that in perspective, Biogen Idec (Nasdaq: BIIB  ) , with multiple drugs on the market, is only worth $17 billion. Sanofi-aventis (NYSE: SNY  ) is purchasing Genzyme (Nasdaq: GENZ  ) and its $4 billion in revenue for $20 billion and change. To see substantial growth from here, telaprevir and VX-770 will need to become mega superstars or Vertex will need a third miracle drug. Given Vertex's track record, I wouldn't bet against that happening and short the stock, but I'm not really interested in owning it at these levels either.

To see the Rule Breakers analysts' current thoughts on Vertex, click here to grab a free 30-day trial subscription to the newsletter.

Gilead Sciences is a Motley Fool Stock Advisor pick. Novartis is a Motley Fool Global Gains choice. Vertex Pharmaceuticals is a Motley Fool Rule Breakers selection. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool has a disclosure policy.

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