Vertex (NASDAQ:VRTX) has been one of the most hit-and-miss investments in the biotech industry over the past five years, but investors who have hung in through thick and thin have been rewarded.

Despite a short-lived run as the globe's pre-eminent leader in treating hepatitis C, shares have more than tripled from their lows in 2011. The reason for investors' enthusiasm stems from Vertex's bold plan to transition itself away from hepatitis C to become the leader in developing drugs to treat cystic fibrosis, a life-threatening disease that erodes lung function.

Source: Vertex Pharmaceuticals.

Turning the rudder
Vertex's Incivek was once the fastest drugs to ever reach billion-dollar blockbuster sales status; however, its dominance as a treatment for hepatitis C ended quickly as doctors began warehousing patients for treatment with next-generation oral drugs like Gilead's (NASDAQ:GILD) Sovaldi.

Gilead won approval for Sovaldi in December, and it's fast become doctors go-to treatment, with sales totaling more than $2.2 billion worth in the first quarter. For comparison, Vertex reported net sales of Incivek totaled just $4 million in the first quarter, down from more than $200 million a year ago.

As a result of falling Incivek sales due to Sovaldi, Vertex jettisoned Incivek's overseas royalty stream to Johnson & Johnson for $152 million in cash last fall. That cash will be used by Vertex to support its cystic fibrosis research program.

Vertex's first cystic fibrosis treatment to graduate from that program and clear FDA regulatory hurdles was Kalydeco. Kalydeco was approved to treat a small subset of Cystic Fibrosis patients in 2012. Even though the drug only works in roughly 4% of cystic fibrosis patients, Kalydeco, which carries an eye-popping price tag north of $300,000 per year, racked up sales of more than $370 million last year.

Source: Vertex Pharmaceuticals.

Building on its early success
Vertex's ability to capture significant sales from such a small patient population has intrigued investors willing to bet that new drugs designed to address up to half of those with the disease could be worth billions.

Those advocates got good news this week when Vertex reported that its next cystic fibrosis therapy -- a two-drug combination that includes Kalydeco and the new drug lumacaftor -- put up statistically significant results during phase 3 trials.

During those trials, patients treated with the therapy saw a 2.6% to 4% improvement in lung function after six months. That may not sound like a lot, but given that lung function steadily declines for cystic fibrosis patients over their lifetime, any improvement is important.

For comparison, those patients treated with placebo in the control group saw their lung function decline over the same period.

Justifying the premium
The results suggest that doctors will embrace the drug given that their other choices are limited, but investors are right to wonder if the news warrants a 40% jump in shares.

The improvement in lung function was small, and while there were fewer reported flare-ups among those receiving the combination drug, patients receiving either the therapy or the placebo didn't report a significant difference in how they felt at the end of the six-month period.

Additionally, while the safety profile appears solid, investors should also know that 4.2% of trial participants receiving the therapy dropped out of the trials because of adverse events. Only 1.6% of patients receiving the placebo dropped out.

Regardless of those concerns, however, the jump in share price may not have over-priced Vertex relative to the drug's potential. While investors should be skeptical of analyst sales projections for drugs that haven't reached market yet, those expectations are looking for peak sales of $4 billion a year or more.

At a current market cap of roughly $22 billion, investors are paying between roughly five times potential forward peak sales. That's aggressive, but not unheard of.

Fool-worthy final thoughts
The drug combination seems to have a good shot at making its way through regulators, but there's no guarantee. In order to justify today's spike, investors will need this therapy to not only lock up the FDA's green light but for it to also deliver on analysts' most bullish projections. That's a tall order that suggests investors may be better served holding off on investing at these levels to see if a better opportunity presents to buy the shares on sale later.