What happened
Shares of rare-disease drugmaker Vertex Pharmaceuticals (VRTX 1.25%) are on the rise this morning thanks to the extremely positive data readouts for three trials assessing three different triple combination drug regimens in individuals with an especially hard-to-treat form of cystic fibrosis (CF) known as the F508del/Min genetic mutation. Patients with this particular genetic mutation are immune to the present generation of FDA-approved treatments. As of 11:34 a.m. EDT, Vertex's shares were up by 22.3% on the back of this positive clinical news.
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So what
The key reason Vertex's shares are jumping, though, is that an FDA-approved therapy for this indication has the potential to garner peak sales in the realm of, say, $3 billion to $4 billion, according to industry insiders. Equally as important, the first disease-modifying therapy for this particular form of CF would enter the market without much of a threat of any type of looming competition.
Now what
Vertex is presently working on the design for a pivotal stage clinical program for one, or perhaps two, of these experimental CF drugs. If all goes according to plan, this late-stage trial should get underway in the first half of 2018. That puts Vertex on track for a key data readout for its core CF franchise in the 2020 to 2021 time frame.
While these clinical readouts are certainly impressive, and Vertex now seems to be assured of gobbling up almost the entire CF market as a result, this orphan drug stock is anything but cheap. With a forward price to earnings ratio of 50.98, Vertex is, in fact, one of the most expensive orphan drug stocks.
Of course, a cash-rich suitor such as Gilead Sciences, that's hungry for new sources of revenue, could come calling soon, thereby justifying this eye-popping valuation. But that scenario has repeatedly been floated in the past, to no avail. In other words, investors should arguably base their buy/sell decisions primarily on Vertex's organic growth prospects moving forward. Vertex's present valuation, after all, would make it hard for any suitor to generate a respectable return on capital within a reasonable time frame.
