Vertex Pharmaceuticals: Street’s CF Sales Up Significantly

Vertex’s (VRTX) remarkable c $7.2bn (62%) increase in market capitalisation last week, on the back of VX-661 Phase IIa top-line data in cystic fibrosis (CF) patients with two copies of F580del mutations, poses a difficult question for investors. While the valuation reflects the market’s confidence in the strength of its potential franchise in CF – possibly worth up to $10bn in peak sales – it also assumes a high probability of success. Vertex is now the undisputed leader in CF with one approved (Kalydeco, ivacaftor) drug and three clinical candidates (VX-809, -661 and -983) in the pipeline, but Edison cautions that the risk is now asymmetric to the downside.

VX-661 data clear cut
In the Phase II study, 128 patients with homozygous F580del mutations were treated with placebo, VX-661 alone, or VX-661 in combination with ivacaftor for 28 days. At the two highest doses, 100mg and 150mg once daily (qd), VX-661 with ivacaftor resulted in a statistically significant increase of FEV1 (relative and absolute) from baseline vs placebo. While VX-661 monotherapy failed to improve patients’ FEV1, it did not worsen FEV1 from the baseline. Worsening of FEV1 from baseline by VX-809 monotherapy in a Phase II trial had caused confusion and concern in the investment community.

VX-661 solidifies Vertex’s leading position in CF
VX-661’s positive combination results, and its read-through to the VX-809/ivacaftor combo pivotal programme, suggest that Vertex now has drugs/regimens that can treat up to 50% of a total of 70,000 CF patients globally. Vertex intends to reach the rest of CF patients through developing second-generation correctors (VX-661 and VX-983) or triple combinations for which clinical data is lacking at this point.

Catching up: Street’s CF sales up significantly
Street estimates for sales in F580del homozygous patients now range from $4bn to $6bn with total CF franchise sales as high as $10bn. Besides bullish sales estimates, the strong earnings power of the CF franchise (premium pricing, targeted patients and high commercialisation margin) also supports Vertex’s impressive valuation.

Valuation: Impressive EV of $16.6bn
Vertex’s EV of $16.6bn (market cap minus net cash of $0.9bn at end 2012) reflects bullish CF sales and high probability of clinical success post VX-661 data.

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