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A Double Dose of Good News for Vertex Pharmaceuticals Incorporated Investors

By Brian Feroldi - Sep 25, 2015 at 12:22PM

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A European committee adopts a positive view of Vertex's drugs, and the opportunity looks huge for investors.

Source: Vertex.

Investors in Vertex Pharmaceuticals (VRTX 0.88%), the global leader in treating cystic fibrosis, received some good news this morning when the company announced that the Committee for Medicinal Products for Human Use has adopted a positive opinion on the approval of Orkambi and expanded labeling of Kalydeco in the European Union.

Once the committee, which goes by the acronym CHMP, adopts a positive opinion on a new drug, it typically takes European regulators a further three months or so before they make an official decision, and they usually follow along with the CHMP's opinion.

While the news of a positive opinion on both drugs is certainly good news, each holds a vastly different opportunity for investors. Let's break them down one at a time.

Expanded Kalydeco labeling 
While gaining additional labeling for Kalydeco is certainly a good thing, the worldwide market for the drug is truly tiny, as current labeling gives the drug an addressable market of about 3,400 patients. If European regulators approve CHMP's opinion, it looks like Vertex will be able to add around 125 children ages 2 to 5 to that group and another 250 adults as well. All told, that would increase the addressable market by slightly more than 10%.

Sales of Kalydeco have certainly been humming along since launch, and grew a nice 37% in the previous quarter, but for the full year, sales from the drug are expected to land between $575 million to $590 million. If this CHMP opinion holds, that number will likely increase next year, but worldwide sales will likely still come up short of getting the drug to blockbuster status. 

Mind you, sales approaching $600 million with a good chance at double-digit growth next year is certainly nothing to sneeze at, but I think there's a bigger opportunity out there.

Source: Vertex.

Orkambi could be huge
The positive opinion on Orkambi, on the other hand, looks like it could be a much bigger win for Vertex, as it's capable of addressing a far larger population.

Orkambi combines Kalydeco with another drug called lumacaftor and was able to gain FDA approval in July of this year. Orkambi is aimed at treating patients with the F508del mutation who are age 12 or older, which in the U.S. alone represents a patient population of about 8,500, a number more than twice the worldwide addressable market for Kalydeco along. In Europe, there appear to be another 12,000 potential patients that could use Orkambi, so if Vertex can gain approval, it will more than double Orkambi's addressable market. 

There's also more upside to those numbers down the road, as Vertex is currently testing Orkambi in use for patients ages 6 to 11. While it will still be some time before the trials are completed and sent off for approval, it will certainly also move the needle.

With an estimated annual cost for Orkambi at $259,000 per patient, analysts are predicting peak sales north of $5 billion. Like any estimate, that number is certain to be wrong, as the actual price that Vertex will receive for Orkambi depends on a number of factors. Even with a European approval, it will still take some time before it starts generating any revenue, as the company will have to negotiate reimbursement on a country-by-country basis. Still, the opportunity looks huge.

Now what?
Vertex investors are use to being put on roller-coaster rides, but investors who have stuck around for the long term have certainly been rewarded. Today's announcement has done little to budge Vertex's share price, and given the recent market pullback, shares can be currently be purchased at a substantial discount from its 52-week high. If Orkambi gains European approval and pricing holds up, that might make the shares a decent candidate for the more speculative portion of your portfolio.

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