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Vertex Pharmaceuticals Incorporated Message Board

  • agnostinvesting agnostinvesting Jul 20, 2012 4:46 PM Flag

    Morgan Stanley VRTX Target price: CF franchise


    In reading the Morgan Stanley target price of Vertex (currently at $66) I was surprised that most of the valuation they give to the stock is from the CF franchise ($54.43/share) ... it looks like most consider HCV an insignificant market for Vertex in the future ($18.17 /share). Their valuation worries me because the CF combo still needs to be approved and the risk remains that something could go wrong ... they give 80% chance for the approval of the combo, I would give it more like 50% chances. Any opinion about this?

    From Morgan Stanley analysis:

    Our $66 target price is based on a sum or parts analysis of Vertex's hepC and cystic fibrosis franchises. Our net present valuation of the hepC franchise is $12.10. In our model, we do not assume any sales of Vertex's triple or quad regimens in hepC.

    Our net present value of the cystic fibrosis franchise is $54.43. This is based on a $18.17 /share of Kalydeco alone in the G551D and class II gating mutations and $36.26 /share value based on a 80% probability that Kalydeco + VX-809 will work in the lucrative del508 mutation market.

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    • I have known ALXN for a very long time. Their initial project was Post Cardiotomy syndrome for CAGB patient and PG was partner with them. Project failed and PG moved away from them. Eclizumab was not a major project for them but look how it turn out for the company and investors. Stock use to be only $18 dollars, not many years ago.

      REGN used to work on Obesity but something else i.e anti VGEF worked for them and now they are working on lowering LDL. Same way it used to trade at $18-22.

      I still think VRTX has better projects and it is just matter of time that this giant volcano will errupt. I am wishing that Kalydeco sales will exceed $75 M in Q2. Chances are high that people will use it off label.

    • Here are today's earnings reports for two biotechs that impacted on their market cap.

      Regeneron sells Eylea for AMD, and its revenue will hit 1 B for the year, analysts estimate. But the drug faces competition from Genentech's Avastin and others for the future. Its other drug for hypercholesterolemia is also in a highly competitive area. Yet, the market cap for REGN is 12 Billion today. I would never buy their shares.

      Another biotech, which may hit 1 Billion sales this year from its only drug Soliris, also reported earnings today, and rose to a market cap approaching 20 Billion. Its PE is 105, but its a good buy here because there is no competition for now. To verify, see:

      Like Soliris, Kalydeco treats a very rare disease and has no competition. Its future sales would grow rapidly when VX-809 or 661 is approved in 2 to 3 years. Even if VX-809 is distributed free of charge to 508 CF persons, Kalydeco sales alone will be multibillion dollars. For this reason you have to give a high PE for the earnings of Kalydeco.

    • Thanks again. Agreed. The possible approval of the corrector and potential or combo is what makes the most feasible option for Vertex to reach the $3billion sales by 2015-2016. I think that the probability of success at 80% is reasonable albeit in the optimistic range. I give it 2 in 3 chance.

      I still hold most of the stock so I hope in addition to the CF at least one or more assets become valuable in the next 2-3 years, either the HCV franchise, the JAK inhibitor or the influence compound. With the CF franchise and one more asset in play, Vertex may reach the $4 billion sales in the next 3 years.

    • Going back to the original question of VX-809/Kalydeco efficacy for 508 mutation, you have to believe that the trial result has some degree of certainty because the p-value is less than 0.001. Even Morgan Stanley, a clear VRTX bear, gave a 80% chance of marketing approval. If you doubt such results, you cannot invest in biotech.

      Read some of stories of Kalydeco off-label use. A R117H CFer reports an amazing results.

      Phase III for R117H has started and will end within a year:

      I don't think this particular mutation is classified as a gating mutation.

    • Ok, thanks. I agree that Kalydeco probably may reach $1-1.5 B sales in 3-4 years, we will see if it goes higher than that. Mutations with gating deficit account for about 10% of CF patients so assuming 70K patients this will be about 7,000. If 5000 of them take Kalydeco that will be $1.5 B/year.

      If you discount the burn rate, earnings from kalydeco in about 2015-2016 will be about $500K/year and for a PE of 15, that is $7.5Billion in market cap ... I insist that to double the market cap the company and reach $20 Billion VRTX will need sales on >$3Billion/year and earnings of $1.5-$2B/year

125.05May 21 4:00 PMEDT