Mad About Missing Vertex Pharma's Big Move? Don't Be, The Stock Is Still Undervalued

BOSTON (TheStreet) -- Remember this slide? A little more than one year ago, I wrote a column about this slide, which came from a Vertex Pharmaceuticals  (VRTX) presentation at the European Cystic Fibrosis Society meeting. Last June, I said investors should pay attention to this slide because it helped explain how Vertex would dominate cystic fibrosis therapy and one day generate $10 billion in annual sales

I don't normally repost old stories but I'm making an exception because this slide and what it says about Vertex's cystic fibrosis franchise long term is even more relevant now following yesterday's big announcement about the success of lumacaftor-Kalydeco combination therapy in treating patients with homozygous 508del mutation

Vertex bulls and bears will argue now about the stock's valuation and whether or not it bakes in sales for the 22,000 cystic fibrosis patients with the homozygous 508del mutation. Fine, whatever. On the day after, I'm more interested in looking ahead to what's definitely NOT factored into Vertex's valuation -- the potential to develop triple-drug combination therapies for approximately 20,000 patients with heterozygous mutations. Tuesday's positive results bolster my confidence in Vertex's ability to reach this next big bucket of cystic fibrosis patients. The company's science is working.

Back to the slide above. Here's what I wrote last June:

The data on the left (with the orange bars) represents "heterozygous" cells with two different cystic fibrosis mutations -- F508del and G542X. Think of these cells as a proxy for about 20,000 "heterozygous" cystic fibrosis patients worldwide who are among the most difficult to treat.

Treatment with single Vertex drugs -- Kalydeco (ivacaftor) or VX-809 ( lumacaftor) -- has minimal activity in these heterozygous cells. Doublet therapy -- using Kalydeco and VX-809 together -- enhances activity a bit. But check out what happens when you add a third "corrector" drug into the mix: The orange bar gets really tall. A tall bar in this graph is good because it means cells are functioning properly. In cystic fibrosis patients, functioning cells translates into vastly improved lung function.

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