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Vertex Pharmaceuticals Scores an Important Win

By Todd Campbell - Feb 16, 2018 at 8:15PM

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The company's 2018 financial outlook just got a bit better.

Rapidly growing sales for its two cystic fibrosis drugs led to Vertex Pharmaceuticals (VRTX 1.96%) being a top stock last year, and management hopes the FDA's sooner-than-expected approval of its third cystic fibrosis drug will keep the momentum going. The approval of Symdeko further expands Vertex Pharmaceuticals' dominance in treating this devastating disease, and that should provide plenty of support to the company's sales this year. 

Expanding its reach

There's no cure for cystic fibrosis, but Vertex Pharmaceuticals may help patients live longer. It won FDA approval of Kalydeco, its first cystic fibrosis drug, in 2013, and it secured FDA approval of a second drug, Orkambi, in 2015. Initially, these drugs won the FDA's green light in older patients; however, their labels have steadily expanded to include use in younger patients since then.

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The ability to treat increasingly younger patients has expanded Vertex Pharmaceuticals' addressable market to over 30,000 patients; however, tens of thousands of patients still aren't eligible to take Kalydeco and Orkambi, and that means there's still a big need for new treatments. 

On Tuesday, the FDA approved Vertex Pharmaceuticals' third drug, Symdeko, a combination of Kalydeco and a new drug, tezacaftor. The approval is important because Symdeko can be used by patients who can't take Orkambi because of side effects.

Unlike Orkambi, Symdeko's prescribing label doesn't warn about respiratory issues or require regular blood pressure monitoring. According to Geoffrey Porges, an analyst at Leerink Partners, Orkambi's drawbacks have limited its penetration to less than 60% of its addressable market. Since Symdeko offers a better safety profile than Orkambi, and Orkambi's sales were $1.3 billion last year, Symdeko's approval is a win for the company and, more importantly, patients.

Big money at stake

Some of Symdeko's sales will come at Orkambi's expense. However, Vertex Pharmaceuticals estimates its three drugs can address the needs of between 31,000 to 44,000 cystic fibrosis patients, up from fewer than 31,000 previously. Because these drugs are expensive (Symdeko's wholesale acquisition price is $292,000), every additional patient represents meaningful revenue for the company. After Symdeko's approval, Vertex Pharmaceuticals issued guidance for sales of between $2.65 billion to $2.8 billion in 2018, up from $2.17 billion in 2017 and roughly $1.7 billion in 2016.

Management's guidance could be conservative given its recent track record of over-delivering, but even if it isn't, the forecast should give the company significant operating leverage this year. The company didn't issue an earnings forecast for the year, but the average estimate by analysts is for EPS of $3.05 in 2018, up from $1.95 in 2017, and $0.85 in 2016.

The extra profitability will come in handy because it will provide important financial flexibility in support of phase 3 trials for two triplet combination therapies that are slated to begin soon. If those trials succeed, it could allow Vertex Pharmaceuticals to help as many as 68,000 of the 75,000 people with cystic fibrosis. That would be game-changing for patients and investors.

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