While pharma and biotech stocks have gone through a rough patch due to the recent drug pricing controversy, one pharma company is on the verge of a breakthrough that could treat nearly all patients with cystic fibrosis, news that has caused its market cap to almost double to $40 billion in only a year.
Vertex Pharmaceuticals Inc. (NASDAQ: VRTX), a 26-year old Boston drugmaker, currently plans to treat 31,000 cystic fibrosis—a progressive lung condition where those who survive into adulthood typically don’t live past age 38—patients across the globe.
Vertex wasn’t always focused on cystic fibrosis. In the company’s early days, it was focused on treating hepatitis C, launching the drug known as Incivek in 2011. But then, Gilead Sciences launched its competing drug, Sovaldi, which was one of the most successful launches in history and nearly put Vertex out of business.
“We were in the middle of a crisis,” CEO Jeffrey Leiden told Investor’s Business Daily. “We had gone from being a hepatitis C company with a billion-dollar drug for literally one year to essentially zero revenue. And there are very few companies that can, frankly, survive that kind of a crisis simply because it’s so hard to pivot to a new area or drug.”
Thankfully, a division of Vertex in San Diego had been quietly working in the cystic fibrosis arena with good results. So the company shifted and today has two medicines to treat the disease.
Fast-forward to this July, when news broke that an experimental three-drug cocktail worked better than expected for a stubborn form of the deadly disease, news that has helped the stock rise 111% so far in 2017, making it the best performer in the S&P 500 for most of this year, a position Vertex lost in September thanks to its first down month since 2016.
Still, Wall Street is firmly bullish with six holds and 22 buys. Some of the optimism may be tied to rumors that the drugmaker may be taken over, though no deal has materialized.
But there’s at least one analyst thinks investors may be getting ahead of themselves. William Blair & Co.’s Y Katherine Xu says investors are overestimating the potential market size for Vertex’s new therapy, and that one key element missing from some long-term models is the risk of other treatments being introduced by competing drug makers.
“If there’s competition, the tail of that revenue stream could be cut in half or cut by a third,” Xu said in a phone interview with Bloomberg. For rivals, Xu said, “it is indeed a tall order, because they have to achieve a lot in a very compressed timeline, but it’s not impossible.”
Potential competitors—including Galapagos NV and partner AbbVie Inc., and Proteostasis Therapeutics Inc.—are also developing their own therapies for cystic fibrosis, and may only be a few years behind Vertex. Each of these companies are chasing the “holy grail” in the treatment of the disease, though Vertex is already the leader in the market.
With the company’s current stronghold in the cystic fibrosis arena, analysts don’t expect its growth to moderate until 2022 and project that Vertex will post 24% annual growth until then.
But as the disaster with Incivek demonstrated, strong-holds don’t always last very long. If the company is able to reinvent and expand its business beyond its cystic fibrosis treatments, we may see extended growth for years to come.