) --

Vertex Pharmaceuticals

(VRTX) - Get Report

is the next

Gilead Sciences

(GILD) - Get Report

. You think I'm reaching? Okay, then Vertex is the next

Alexion Pharmaceuticals

(ALXN) - Get Report


Either way, the big move higher in Vertex's stock price Monday, spurred by the release of strong cystic fibrosis data, is totally justified and likely undervalues the company going forward.

Vertex shares rose $20.71, or 55%, to $58.12 Monday following the announcement that two drugs -- the experimental VX-809 and currently marketed Kalydeco --

significantly improved lung function in patients with the most common genetic mutation causing cystic fibrosis


Monday's data were the result of an interim analysis from a relatively small number of patients, so without a doubt, caution is warranted and the benefit seen from the two-drug therapy must be maintained and confirmed in a larger, pivotal trial.

But if we assume VX-809 and Kalydeco are approved, the revenue numbers for Vertex get very, very large: $4 billion a year in peak cystic fibrosis sales is a floor. The company's cystic fibrosis drugs could top $6-7 billion a year, easily.

There are 70,000 cystic fibrosis patients worldwide and Vertex could easily treat more than half of them with Kalydeco or the VX-809-Kalydeco combination. A year of Kalydeco therapy today costs $294,000 -- not uncommon for orphan disease pricing. Vertex may cut the price of the two-drug regimen but even if you assume $200,000 per year, the sales potential is enormous.

Vertex cystic fibrosis revenue of $6-7 billion year is equal to what Gilead generates in revenue every year from is antiviral product sales, mostly its dominant HIV drugs.

Comparing Vertex to Gilead is very appropriate because their respective revenue streams are sticky, like an annuity delivered every year without fail. Think about it, a cystic fibrosis patient with the f508del mutation will start therapy on Vertex's VX-809 and Kalydeco as a child and will continue on therapy for their rest of their life. Vertex has no competition on the near horizon and its patents extend out to 2027.

This is exactly how Gilead grew to be a monster stock in biotech. Patients take Gilead's Truvada or Atripla to keep the virus in check and they continue taking these drugs day after day, year after year. If anything, Gilead's position is a bit more tenuous compared to Vertex because competitive HIV drugs from other companies exist and Gilead's patent position is weaker.

With Monday's big stock surge, Vertex carries a market cap of $11.5 billion, still well below Gilead even if you subtract the value attached to its recent push into hepatitis C.

If you think comparing Vertex to Gilead isn't appropriate, then how about Alexion and its orphan disease drug Soliris, which is currently on a $1 billion sales run rate and growing like gangbusters. Alexion is a $17 billion company, but Vertex is only worth $11.5 billion?

These market value comparisons are imprecise, granted, but you get the idea. Don't under-estimate the sheer size of Vertex's revenue potential in cystic fibrosis or its durability.

I'm not even considering Vertex's still very much alive hepatitis C business, either. This is why investors have come to love and covet the stock of companies developing truly effective therapies for rare, genetic diseases.

TST Recommends

Big Pharma loves rare disease companies, too.


(SNY) - Get Report



for $20 billion, remember? It's hard to imagine a company like

Johnson & Johnson

(JNJ) - Get Report

not running the numbers right now on buying Vertex. Speculating on a takeout is not reason enough to own a stock, but in the case of Vertex, the huge commercial potential for its cystic fibrosis business is compelling even without an acquisition.

--Written by Adam Feuerstein in Boston.

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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;

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