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Shares of rare-disease drugmaker Vertex Pharmaceuticals (NASDAQ: VRTX) are on the rise this morning thanks to the extremely positive data readouts for three trials assessing three different triple combination drug regimens in individuals with an especially hard-to-treat form of cystic fibrosis (CF) known as the F508del/Min genetic mutation. Patients with this particular genetic mutation are immune to the present generation of FDA-approved treatments. As of 11:34 a.m. EDT, Vertex's shares were up by 22.3% on the back of this positive clinical news.
The key reason Vertex's shares are jumping, though, is that an FDA-approved therapy for this indication has the potential to garner peak sales in the realm of, say, $3 billion to $4 billion, according to industry insiders. Equally as important, the first disease-modifying therapy for this particular form of CF would enter the market without much of a threat of any type of looming competition.
Vertex is presently working on the design for a pivotal stage clinical program for one, or perhaps two, of these experimental CF drugs. If all goes according to plan, this late-stage trial should get underway in the first half of 2018. That puts Vertex on track for a key data readout for its core CF franchise in the 2020 to 2021 time frame.
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While these clinical readouts are certainly impressive, and Vertex now seems to be assured of gobbling up almost the entire CF market as a result, this orphan drug stock is anything but cheap. With a forward price to earnings ratio of 50.98, Vertex is, in fact, one of the most expensive orphan drug stocks.
Of course, a cash-rich suitor such as Gilead Sciences, that's hungry for new sources of revenue, could come calling soon, thereby justifying this eye-popping valuation. But that scenario has repeatedly been floated in the past, to no avail. In other words, investors should arguably base their buy/sell decisions primarily on Vertex's organic growth prospects moving forward. Vertex's present valuation, after all, would make it hard for any suitor to generate a respectable return on capital within a reasonable time frame.
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George Budwell has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Gilead Sciences. The Motley Fool has the following options: short August 2017 $75 calls on Gilead Sciences. The Motley Fool recommends Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.