If you assume that the yearly treatment cost for Kalydeco is 150k (not 250k Credit Swiss assumes), VRTX earnings from Kalydeco sales in 2013 would be about $1/shr. But the earnings from Incivek will be about $4/shr. I want to show that the quality of the former earnings is better than the latter.
Initially, the sales force will target a group of 2000 G551D CF gene carriers in the US and EU. This figure corresponds to 3% (not 1.6%) of all CFers in the two regions. The annual revenue and income from the sales are not only repeatable year after year (because there is no competitor) for many years but will also increase many fold in the subsequent years because the sales will expand to treat R117H and other gating mutations. In three years Kalydeco will have a great chance of treating 7% (=3+3+1) of all CFers. An additional 1% will be added to this sum if 2-5 years olds can be treated. This 8% of all CFer in the regions corresponds to about 5000 people. This means a 150% growth of sales and about a 200% growth of earnings from the baseline of the Year 2013’s. Since this growth would occur over two years (three years from now), the annual growth rate would be 141%.
The demand expansion for Kalydeco does not stop there. The trial for CF gene F508del will be a success, even if it is a modest improvement over the earlier Phase 2, the % of all CFers who will benefit from the VX-809/Kalydeco combination will increase by 48k people(69%x70k) from the current target of 2k. This is a 2300% increase.
Now assume that the PEG ratio is 1. What do you get for the value of Kalydeco alone?
Per the 3rd qtr conference call, the European KALYDECO application covers G551D and all other gating mutations. I wonder what the US off label use rate will be until they get it expanded in the US. Management says the G551D percentage of the market is 4%.