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2 Reasons That Cystic Fibrosis Trumps Hep C

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Vertex Pharmaceuticals (Nasdaq: VRTX  ) is up more than 70% after announcing positive data for its new drug combo to treat cystic fibrosis last week. That kind of jump isn't uncommon for development-stage drugmakers, but it's quite an increase for a drugmaker that already has two drugs on the market. The increase added over $5 billion to the company's value.

There are basically two reasons investors are so excited about the cystic fibrosis data even though the company has a hepatitis C drug that's already a blockbuster.

First, the drug combination -- VX-809 and Kalydeco -- treats cystic fibrosis, but it doesn't actually cure the patient. Patients have to take the drug for the rest of their lives. With hepatitis C treatments, on the other hand, after the course is done, there's no more opportunity to get further revenue from that patient. And that patient can no longer infect another patient, so it's a diminishing market.

Kalydeco is already on the market, but investors are rightfully more excited about the combination treatment because while Kalydeco is only designed to correct a mutation that occurs in about 4% of cystic fibrosis patients, the combination is designed to increase lung function in those with a mutation that occurs in half of cystic fibrosis patients.

Second, and equally important, Vertex basically has no competition in this space. There are companies trying to treat the lung infections that cystic fibrosis patients get, but treating the underlying condition is a completely different ball game.

Compare that to the hepatitis C market, where Vertex is dominating Merck (NYSE: MRK  ) in the first-generation oral medication battle but where there are also drugs from Gilead Sciences (Nasdaq: GILD  ) , Bristol-Myers Squibb (NYSE: BMY  ) , Abbott Labs (NYSE: ABT  ) , and others that look like they'll work just as well if not better than Vertex's Incivek without requiring injected drugs that have unpleasant side effects.

Those two reasons alone justify the value that Vertex added last week. Just keep in mind that the combination hasn't been de-risked entirely. The data, as strong as it was, is only from a phase 2 trial with just 37 patients treated.

The data is also a little puzzling because the standard biomarker for improvement in cystic fibrosis patients, sweat chloride, didn't go down by a statistically significant amount. Now granted, lung function, which did improve, is what doctors, patients, and the FDA will care about, but I'd have more confidence that we'll see the same improvement in lung function in the phase 3 trial if the biomarker also improved substantially.

Vertex is beating the market by 500% since Fool co-founder David Gardner and his team first recommended the stock in 2005. You can see his latest health-care find in the Fool's new free report "Discover the Next Rule-Breaking Multibagger." Get your copy for free by clicking here.

Fool contributor Brian Orelli holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Abbott Laboratories. Motley Fool newsletter services have recommended buying shares of Gilead Sciences and Vertex Pharmaceuticals. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (3) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 17, 2012, at 7:01 AM, mynameis111 wrote:

    Good article Brian.

    The next Vertex is Ariad Pharmaecuticals.

    I am surprised that David Gardner has not yet detected this Rule-Breaking Multibagger.



  • Report this Comment On May 17, 2012, at 7:22 AM, cabostacos wrote:

    One might say its begining to look like the Fool is a pumping machine in regards to VRTX.

    5 posts in 7 days?

    I cant remember reading so much pump with one stock .

    Seems like someone has boarded this ship after it left the pier.

    good stock up 75% with a phase 2 results?

    VRTX is going to fill the gap no matter how hard some are trying to prop it up

    give it a rest

  • Report this Comment On May 17, 2012, at 5:25 PM, TwinStrides wrote:

    Well as a mother of twins with cystic fibrosis, I can truely say any news to me is good news no matter how many times its said!. I have stock in this company because I know what they are capable of. My twins have the DeltaF508 or in trial right now the VX-809 with Kalydeco. I am anxiously awaiting the final results so we can get started, it's better than nothing. One of my twins just spent 21 days in the hospital with a middle lobe collapsed lung with a drowing lung function of 50%. I want results this very moment and this very moment is "NOT" soon enough! I see first hand what the doctors have to say and surely there is a prime interest in this stock as I have invested a long time ago when the stock was low. Go Motley it's gonna be worth the weight and gold when my twin boys starts getting this medicine on board. My personal quote: If there is a cure this "very moment" and this very moment is NOT soon enough, you'd hear this twin's mom ACROSS AMERICA!! YESSSSSSSSS!!!!!!.

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