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Vertex Pharmaceuticals (VRTX - Free Report) is the leading biotechnology company with a treatment for cystic fibrosis (CF).

The company holds a strong position in this market with two commercial products, Orkambi and Kalydeco. Early in August, Vertex had said that it expects its CF franchise to deliver revenues of $1.87 billion to $2.1 billion in 2017 including Orkambi revenues of $1.1 billion to $1.3 billion.

The CF market represents huge commercial potential. It is a rare, life-threatening disease estimated to affect about 75,000 people in North America, Europe and Australia. Vertex enjoys a strong position in this market being the first company to successfully develop a drug, Kalydeco, that treats the underlying cause of CF.

Vertex is working on expanding its CF portfolio and is currently seeking both FDA and EMA approval for new combination treatments of its so-called "correctors." With the FDA granting priority review, a response should be out by Feb 28, 2018.

What is CF?

Cystic fibrosis is an inherited disorder that causes severe damage to the lungs, digestive system and other organs in the body. According to the Mayo Clinic...

Cystic fibrosis affects the cells that produce mucus, sweat and digestive juices. These secreted fluids are normally thin and slippery. But in people with cystic fibrosis, a defective gene causes the secretions to become sticky and thick. Instead of acting as a lubricant, the secretions plug up tubes, ducts and passageways, especially in the lungs and pancreas.

Although cystic fibrosis requires daily care, people with the condition are usually able to attend school and work, and often have a better quality of life than people with cystic fibrosis had in previous decades. Improvements in screening and treatments mean people with cystic fibrosis now may live into their mid- to late 30s, on average, and some are living into their 40s and 50s.


Why Did VRTX Jump 20% in July?

On the morning of July 19, VRTX shares popped nearly $30 from $130 to $160. My colleague Brian Hamilton wrote about this in his Bull of the Day shortly after...

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 shown by three different triple combination regimens. The data showed consistency across many regimen 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 regimens, 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 commercial treatments 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 for Vertex if and when it eventually gets full approval. Further, it is estimated that these triplet regimens will penetrate almost 90% of the $9 billion CF market.

Wall Street Analysts Boost Estimates and Price Targets

The reaction of investment bank research teams was overwhelmingly positive. After a steady decline in profit expectations throughout the previous 18 months, EPS and sales estimates started to turn back up.

For the full-year 2017, Vertex is expected to earn $1.66 per share on revenues of $2.2 billion. Those projections represent 95% EPS growth and 29.5% growth on the top line.

For 2018, Vertex is seen nearly doubling its EPS again to $3.13 (the high estimate is $4.64) on revenues of $2.7 billion, for 22% sales growth.

And here were several of the standout price target moves, or reiterations...

7/19 Credit Suisse $125 to $195
7/19 Raymond James $181
7/19 Piper Jaffray $194
7/19 Barclays $115 to $180
7/21 Robert W. Baird $136 to $171
7/21 Citigroup $135 to $190
7/22 Morgan Stanley $153 to $190
7/27 Oppenheimer $150 to $175
7/27 JPMorgan $175 to $184
7/27 Maxim Group $195

I recommended to subscribers in my Healthcare Innovators portfolio that we buy VRTX near $150 with a long-term view. Our next catalyst is early 2018 when we could get news of successful triplet combination treatments for CF and the FDA thumbs up to proceed with clinical trials. That success is critical to the price targets above.

Disclosure: I own VRTX shares for the Zacks Healthcare Innovators portfolio.

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