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Vertex's Roadmap to $10 Billion in Cystic Fibrosis Drug Sales

Stocks in this article: VRTX GILD

CAMBRIDGE, Mass. ( TheStreet) -- Think of the chart above as a simple roadmap explaining how Vertex Pharmaceuticals (VRTX) will one day come to dominate cystic fibrosis therapy and generate annual sales of $10 billion with little to no competition.

That's Vertex's plan, at least.

I say "one day" because the only box checked off on the Vertex cystic fibrosis roadmap to date is the small orange one representing about 2,000 patients with the relatively rare G551D mutation who benefit from Kalydeco monotherapy. Kalydeco sales are expected to reach $300 million to $340 million this year.

Here's how Vertex grabs the rest of the cystic fibrosis treatment market:

Step 1: Get Kalydeco monotherapy treatment approved for use in the approximate 5,000 patients with the R117H and non-G551D gating mutations. Phase III studies are fully enrolled with data expected in the second half of the year. The FDA granted Kalydeco Breakthrough Therapy Designation for these indications, which should help accelerate approval (as long as the results of the study are positive.)

Step 2: Use combination therapy -- Kalydeco plus the experimental "corrector" VX-809 -- to treat 30,000 cystic fibrosis patients with the F508del homozygous mutation. Two phase III studies of Kalydeco+VX-809 are underway with data expected in 2014. The FDA has also granted Breakthrough Therapy Designation to this combination therapy.

On Thursday, Vertex will present updated results from a phase II study of Kalydeco and VX-809 in F508del homozygous patients at the European Cystic Fibrosis Society (ECFS) conference. We've seen much of these data already but the update could -- should -- give investors greater confidence in a positive outcome for the ongoing phase III trials. Investors will be focused particularly on results from "cohort 3" which used a higher, 400 mg twice daily dose of VX-809, which Vertex decided to incorporate into the phase III trials.

Step 3: Figure out a way to treat 20,000 cystic fibrosis patients with F508del heterozygous mutation. This is the last and most challenging task facing Vertex because these "heterozygous" patients are the most difficult to treat. Vertex believes it can get there with combinations of Kalydeco plus second-generation correctors like VX-661 and VX-983.

Toward this end, the most interesting Vertex data presentation at the ECFS meeting on Thursday will be pre-clinical data demonstrating the activity of triple-combination therapy against heterozygous disease. Again, these are still laboratory experiments and triple combination therapy has not yet been studied in actual cystic fibrosis patients, but the data should serve as a proof of concept and give investors an idea of how Vertex might capture the last, large group of cystic fibrosis patients.

Follow the roadmap, don't get lost, and Vertex dominates cystic fibrosis just like Gilead Sciences (GILD) does with HIV. Peak sales of $10 billion from Vertex's cystic fibrosis franchise is entirely realistic, which would make the stock's current $18 billion market valuation plenty cheap.

-- Reported by Adam Feuerstein in Boston.

Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.

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