2 Reasons Vertex Pharmaceuticals Just Got Upgraded

Needham upgraded shares of Vertex Pharmaceuticals Incorporated VRTX from Hold to Buy, with a price target of $155. The price target, according to the firm, is based on 25 times its estimated earnings per share for 2022, discounted 20 percent annually.

Analysts Alan Carr and Danielle Brill attributed the upgrade to:

• Favorability of the triple regimen program's potential for success.
• Cystic Fibrosis landscape continuing to favor Vertex, given the substantial lead it has in the market.

The Triple Program

The triple program is with respect to its CF treatment candidates, which are being studied along with tezacaftor, or VX-661, and ivacaftor for treating certain mutations of the gene that cause CF.

The analysts noted that four candidates are in clinical testing, namely VX440, VX152, VX659 and VX445, which are being tested with ivacaftor/tezacaftor. Giving details of the clinical testing, the analysts said:

• VX440 and VX152 are in 4-week phase 2 trials in F508, with results expected in the second half of 2017.
• VX659 and VX445 are in phase 1 testing, with data for the former expected in the second half of 2017 and the latter in the first half of 2018.

Late-2020 Launch Likely

Needham, having incorporated the triple program into its model, expects a late 2020 launch. The firm expects strong commercial execution with Kalydeco (Ivacaftor) and assume ivacaftor/tezacaftor launch in the U.S. in 2018, based on positive phase 3 results announced in March 2017.

Needham believes a decision to select either VX445 or VX659 over VX152 or VX440 may introduce a few months' delay to the phase 3 initiation.

Though the company has not presented clinical data from its triple regimen programs, the firm believes the risk is mitigated by portfolio strategy and reliability of Vertex' in-house preclinical assay translation to clinical setting.

Leaving Competition Behind

The firm sees a further enhancement in Vertex' competitive profile due to a transaction the company announced with Concert Pharmaceuticals Inc JMPC in March 2017, creating an option for once-daily triple regimen.

Given Vertex's lead in CF space, the firm believes competitive regimens are likely to progress slowly.

Needham noted that Vertex announced Kalydeco label expansion in May 2017 to include 900 U.S. patients with residual mutations. Accordingly, the firm raised its Kalydeco estimates for 2017 and 2018. The firm also sees the possibility of another expansion to 600 patients, with splice mutations, this year.

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