Inside Wall Street: closer to a cystic fibrosis cure

A biotech's focus on developing a drug for the chronic disease gets a boost from new, positive data.

By Gene Marcial May 3, 2013 6:11PM

Image: Medical doctor (© Digital Vision/Getty Images)The biotechs, particularly the mega big-cap stocks, have been stellar performers in this robust bull run -- driven by expectations of strong quarterly results and sustainable accelerating growth rates. Moreover, global liquidity that could flow into the still under-appreciated biotechs are fueling additional positive vibes.


Indeed, most of the gains have been concentrated on the sector’s largest and most successful companies, including Amgen (AMGN) and Gilead (GILD), while the small-caps that have yet to make money or come up with compelling products have been left behind.


But there are several small-cap biotechs that also have excelled, not only because of the market’s upswing but due to  improving data on some of their drug candidates demonstrating fresh positive results.


Vertex Pharmaceuticals (VRTX), which develops small-molecule therapeutics for viral diseases such as cystic fibrosis and hepatitis C,  is one that stands out among the crowd. New data the company reported recently, regarding its drug aimed at cystic fibrosis, immediately won extra attention from Wall Street and investors.


The stock shot up to a new high of $79.02 a share on Apr. 22, 2013, right after the company disclosed new data from its latest clinical studies on a compound for lung function therapy. Profit taking took the stock down to $76 by early May.     


Vertex is in partnership with the Cystic Fibrosis Foundation in studying  novel small molecules for the treatment of cystic fibrosis (CF), led by orally-dosed Kalydeco, which was approved in January 2012 for treating certain adult CF patients with specific rare mutations. Sales of Kalydeco in 2012 totaled $172 million.


Vertex announced phase 2 clinical data on its VX-661, the next-generation “corrector” compound after Kalydeco --  which showed that, combined, produced a statistically significant improvement in lung functions in adults suffering from cystic fibrosis.


‘We believe this opens up a significant portion of the cystic fibrosis market to Vertex and means its cystic fibrosis franchise could be very large,” says Jason Kolbert, managing director and biotech analyst at Maxim Group. It’s a giant step, he adds, in unlocking the $4 billion global cystic fibrosis market.


Rating Vertex as a buy, Kolbert raised his target price for the stock to $88 a share, “driven by the potential of a Kalydeco/VX-661 corrector combination expanding the franchise in cystic fibrosis.” A year ago, Vertex’s stock was trading as low as $35 a share.


The time frame for approval of VX-661 could be fast, he predicts, as the Food and Drug Administration “clearly understands the need and Vertex’s program qualifies under the new FDA guidelines as an innovative therapy.”


“We are impressed by VX-661’s efficacy,” says Ying Huang, an analyst at Barclays Capital, who rates Vertex as overweight, raising his price target to $95 a share from $68. The phase 2 results, which had been highly anticipated by investors, exceeded the Street’s expectations, notes Huang, as VX-661/Kalydeco demonstrated a statistically significant improvement in various doses.


“We believe Vertex is one step closer in its quest of finding a cure for cystic fibrosis,” declared Huang. Vertex, he adds, “remains the undisputed leader in cystic fibrosis," prompting him to boost his price target for the stock.


Following the encouraging results from VX-661 and the recent progress in a third corrector compound, VX-938, plus the company’s work on second-generation corrector compounds, “we raise the probability of a phase 3 success” for VX-809, another corrector for cystic fibrosis, says Huang.


If the “Kalydeco/VX-809 combination is efficacious in improving lung functions for cystic fibrosis patients,” says Huang, "the upside case for Vertex will jump to $125 a share, by our analysis."      

Gene Marcial wrote the column Inside Wall Street for Business Week for 28 years and now writes for MSN Money’s Top Stocks. He also wrote the book "Seven Commandments of Stock Investing," published by FT Press.



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