This FDA Nod Is a Game Changer for Patients: Could It Equal Billions for Vertex Pharmaceuticals?

Vertex Pharmaceuticals (VRTX 0.20%) is already a rock star in the world of cystic fibrosis (CF) treatment. The company's drugs have been life-changing for children and adults living with the disease. And that's resulted in billion-dollar revenue and profit for Vertex. It's also helped the company build up more than $11 billion in cash to support development of new CF drugs and candidates in other areas.

But one thing has been missing from this bright picture. And that's treatment for the very youngest of patients: babies from one month through three months old. Until now. The U.S. Food and Drug Administration (FDA) recently approved Vertex's Kalydeco for use in this age group. It's a clear game changer for patients. Could it also equal billions for Vertex? 

Why Vertex drugs are successful

It's important to first look at why Vertex's CF drugs are so successful. In CF, mutations in the cystic fibrosis transmembrane conductance regulator (CFTR) gene lead to the production of a faulty protein. This protein can't do its job right -- and that causes CF's devastating symptoms. Vertex's CFTR modulators help the protein function properly. So, these products truly are extending life and quality of life.

Different mutations cause different problems in CF patients. Vertex commercializes four different CFTR modulators, each targeting specific mutations.

Now, let's talk about the latest news. The FDA approved Kalydeco for use in babies as young as one month old. Prior to this, parents had to wait until their baby's fourth month to start treatment. One of the main investigators in the Kalydeco study said treating babies as early as possible is key because it may slow down the progression of the disease.

Kalydeco now is the first and only CFTR modulator approved for the one-to-three-month age group. Clearly, this is a big deal for families -- and a significant step in the world of CF treatment.

Vertex also has submitted requests for regulatory approval in this age group to the European Union, the U.K., and Canada.

The U.S. approval -- and potentially approval in other countries -- should translate into millions of dollars in additional revenue for Vertex. Kalydeco's list price in the U.S. tops $300,000 a year. And this new approval puts patients on the treatment three months earlier than before. So, you could say it represents an extra $75,000 per patient.

The role of genetic mutations

But, this approval may not represent billions in revenue -- at least not for a long while. Each year, about 2,500 babies born in the U.S. alone are diagnosed with CF. But not all of these babies have the genetic mutation that makes them candidates for Kalydeco. The drug covers individuals with one of 97 different mutations. But it doesn't work for people with the most common CF genetic mutation, the F508del mutation. Vertex's other drugs do, but they aren't approved for such a young age group.

Even if this particular approval doesn't immediately equal billions of dollars in extra revenue for Vertex, I would argue that it's still a significant event for the company. By treating the very youngest of patients, Vertex is further ensuring its dominance in the CF market. The company has predicted it can maintain leadership until at least the late 2030s. Expanding into younger age groups is part of the equation.

As for revenue, this new approval could boost the growth of a product that's lost some momentum following the entrance of Vertex's newer CF drugs. For example, Trikafta -- approved in 2019 -- has the ability to treat a greater percentage of CF patients. So, it's gained significant market share.

Should you invest in Vertex?

Yes -- but not just because of it. Kalydeco's new approval is positive for the reasons mentioned above. But, today, I would buy Vertex shares for the entire CF package, and the growth Kalydeco and Vertex's other CF drugs may offer over time. And Vertex even has a candidate in phase 3 trials that may become the company's best CF drug yet.

At the same time, Vertex is advancing candidates outside of its CF specialty. It even recently submitted a potential curative treatment for blood disorders for regulatory approval. That could become the company's next blockbuster.

Meanwhile, Vertex shares trade for 23 times forward earnings estimates -- and that seems pretty reasonable considering the growth that's happening now and prospects ahead.

So, Vertex's latest FDA nod may not, on its own, represent billions. But it's one more reason to be optimistic about the company's market dominance and growth down the road.