Shares of Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) have appreciated significantly in 2013 so far, and it seems that the trend might continue for the rest of the year. Vertex is a biotech company focused on treating rare diseases with limited treatment options. Vertex has popped big recently on new promising data for patients diagnosed with Cystic fibrosis.
Cystic Fibrosis is a rare disease that causes thick mucus to build up in the lungs and digestive tract, causing severe damage. The reason for the huge pop with the new Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) data is that the disease is life threatening. As treatment options have improved, so has the life expectancy of patients living with the disease. Since Vertex treats this rare disease, it will be more easier for the company to obtain FDA approval.
This is the reason why I think that investors should take a look at the company, despite Vertex jumping up 60% in one day. I feel that the company has more room to run as they are only in phase 2 study. Investors have more catalysts to look forward to, and the stock may climb higher in the coming months.
So, what caused the huge jump in shares of Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX)? Recently, the company announced that combining their current approved drug Kalydeco with VX-661 showed an increased lung function compared to placebo. Improved lung function was 7% and 9.5% in the two groups, compared to that of placebo. The data is groundbreaking, and that is the reason why Vertex added $6 billion in market cap on April 19.
The VX-661 drug is still years away from being marketed, but Kalydeco is already approved. Kalydeco, which currently treats 4% of the patients with cystic fibrosis, has a market potential that is expected to reach $1 billion by 2016. This is possible because there are 30,000 people in the United states with Cystic Fibrosis. The amount of money to be made is staggering, which is why we have seen this company jump higher. Kalydeco costs $290,000 per year per patient.
Hepatitis C and beyond
Don’t think for a second that Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) is a one hit wonder like other biotech stocks with only one drug in the pipeline. The company also has Incivek, which was approved by the FDA on May 23, 2011. Incivek has been doing pretty well for the company, and in the third quarter of 2012, Incivek had sales of $254 million. The company seems to be going for more Hepatitis C drug approvals in the future.
Vertex also has two other Hepatitis C drugs in its pipeline. There is VX-135 and VX-122, both of which are in phase two clinical testing. Whether these drugs materialize remains to be seen, but it is great to see that this company has more to its pipeline than Kalydeco. The company will face some competition though, as the Hepatitis C space is getting more intense in the biotech industry.
The first of the competition is from big pharma company Merck & Co., Inc. (NYSE:MRK). Merck had its Hepatitis C drug Victrelis approved by the FDA on May 13, 2011. In the third quarter of 2012, sales of Victrelis reached $149 million. This compares closely to Incivek’s sales of $254 million in the same time period, and shows how close these companies are in Hepatitis C sales.
The downside to Merck’s Victrelis is that the drug was found to interfere with AIDS drugs. This is a huge blow to Victrelis, because 15% of Hepatitis C patients are also HIV positive. Thus, Merck loses out on a good portion of sales for its drug. Despite this downside, the drug seems to be doing okay in the market alongside Incivek.
I think that the biggest competition of all will come from an experimental drug from Gilead Sciences, Inc. (NASDAQ:GILD). So, why is Gilead’s Hepatitis C drug expected to be better? Quite simply, the drug Sofosbuvir, is an all oral therapy that could possibly end up replacing the current standard of care treatment for patients with Hepatitis C. Current standard of care treatment is interferon for Hepatitis C patients. Interferon is known to cause a lot of severe side effects such as depression, anemia, and severe flu symptoms.
That’s remarkable for Gilead, as once approved, the drug could end up becoming the new standard of care. We will have to see how that plays out. In the meantime, more companies with new hepatitis C treatments will come about in the next few years. So, Incivek has some work to do to stay afloat. There are about 4 million people in the United States infected with Hepatitis C. There is plenty of opportunity in this space, but the battle for revenue will be long.