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Cystic Fibrosis (CF) is a rare genetic disease that causes persistent lung infections and limits the infected person’s ability to breathe.  According to the CF Foundation, “In the lungs, the mucus clogs the airways and traps bacteria leading to infections, extensive lung damage, and eventually, respiratory failure. In the pancreas, the mucus prevents the release of digestive enzymes that allow the body to break down food and absorb vital nutrients.” Our Zacks Bull of the Day, Vertex Pharma (VRTX - Free Report) has created a new drug that improves lung functions in patients.  

This Zacks Ranked #1 (Strong Buy) company discovers, develops and markets small molecule drugs that address major unmet medical needs. The company has eight drug candidates in clinical development to treat viral diseases, inflammation, cancer, autoimmune diseases and neurological disorders. Vertex has created its pipeline using a proprietary information-based approach to drug design that integrates multiple technologies in biology, chemistry and biophysics aimed at increasing the speed and success rate of drug discovery.

Recent Announcements

On Tuesday July 18, management announced that three of their four next-generation correctors in development to treat cystic fibrosis (CF) patients had positive Phase 1, and Phase 2 data.  Highlighting the report was the efficacy and safety that was shown by the three triplet regiments.  The data showed consistency across many regiments and patient populations, and is viewed as a game changer for the disease.  Given this positive data, it is expected that the company will be granted Breakthrough Therapy Designation (BTD) for their triplet regiment; cutting the 12 month timeline to 6 months.  It is estimated that the 24-week Phase three trials will begin in the first half of 2018, and potentially be launched in the late part of 2019.  

This breakthrough therapy is expected to deliver increased sales and earnings growth over the next 5 years if and when it eventually gets full approval.  Further, it is estimated that this triplet regiment will penetrate almost 100% of the $9 billion CF market.

The company is reporting Q2 17 earnings after the market closes on July 26th.  

Streets Response

After the Phase I and II trial results, several brokerage firms made significant upgrades to their ratings and target prices; Citigroup maintained their Buy rating, and raised their target price from $135 to $190, Oppenheimer increased their rating from Perform to Outperform, and set their target price to $150, and Stifel reiterated their Buy rating and lifted their target price from $154 to $182.

Most Accurate Estimate Versus Zacks Consensus

According to the Zacks models, the most accurate estimates for the current and future quarters are well above the consensus estimates;  Q2 17 most accurate is $0.10, above the $0.06 consensus (+66.7% upside), Q3 17 most accurate is $0.11, ahead of the $0.06 consensus (+83.3% upside), FY 17 most accurate is $0.74, above the $0.50 consensus (+48% upside), and FY 18 most accurate is currently at $1.69 ahead of the consensus of $1.38 (+22.5% upside).  

Price and EPS Surprise Graph

Due to the announcement the stock price has surged over the past few days.  Further, VRTX has a stong history of beating the consensus earnings estimates as they have posted a 4 quarter average positive earnings surprise of +406.3%.

Bottom Line

This breakthrough drug will become the gold standard for the treatment of CF, and will retain the vast majority of the impacted segment for the next 5 to 10 years.  This will positively boost sales and earnings growth for the foreseeable future, and will help tens of thousands of people who suffer from CF.

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