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TMFPostOfTheDay (< 20)

A Victory for Vertex

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June 25, 2014 – Comments (1) | RELATED TICKERS: VRTX , GILD

Board: Value Hounds

Author: stillwater9999

Vertex Pharmaceuticals is a story that clearly illustrates the difficulties in biotech investing. The company was started in 1989 by Joshua Bolger based upon the premise of rational drug design. In the 1990s the company had one of the longest list of pipeline drugs in development. Year after year the stock ran up and down based upon the clinical advancement or failures of the pipeline. The company ran through billions in research and development spending. Then finally it began to focus on hepatitis C and the protease inhibitor Telaprevir which was finally approved by the FDA in 2011. Vertex saw it as having blockbuster status. On the sales of this drug VRTX finally showed a small profit of 0.14/share in 2011.

But then just a few years later competitive hep C products from Gilead with others to follow made Telaprevir an also ran. The company left that therapeutic area selling of the remaining rights.

Meanwhile what started years ago as a back burner program in Cystic Fibrosis has flowered into what may save the company. I was heavily involved in looking at CF programs for JNJ in the early 2000s. The Vertex program for what was to become Kalydeco was just in Phase 2 then.
The science looked very elegant but the risk was high, too uncertain to get any firm interest from JNJ at the time. The program was largely funded by the Cystic Fibrosis foundation. Kalydeco (Ivacaftor) improves the transport of chloride through the ion channel. Cf is a horrible genetic disease in which the lack of chloride transport in the lung membranes leads to build up of mucus which often leads to lung infections. Patients must undergo daily beating on the back and use of inhaled anti-biotics. Many eventually need lung transplants. Kalydeco only helped in a subset of patients. But in the news out today Vertex has combined it with a second agent, lumacaftor, which moves the critical CFTR protein in a broader set of patients to where Kalydeco can do its work:

http://www.forbes.com/sites/matthewherper/2014/06/24/in-a-vi...

While there remains some debate over the full strength of the results, it appears they are solid enough to greatly expand the CF franchise for Vertex. Potential sales of the drug combination are being forecast in the $5B range assuming a $160,000 yearly cost per patient. When I was looking at the CF area years ago, no one dreamed of such revenues or such yearly patient costs. But in the current environment they be realistic.

Beautiful science and great news for CF patients.

Biotech remains a highly unpredictable area for investors.

sw 

1 Comments – Post Your Own

#1) On June 25, 2014 at 6:58 PM, RRobertsmith (< 20) wrote:

sell on GOOD news, why is this so hard?

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