Therefore, faced with gradually declining revenue from Incivek, Kalydeco’s top line weight could increase throughout 2013. Vertex expects $345 million to $360 million of its $1.175 billion in projected annual revenue to be generated by Kalydeco. The remainder of the revenue is expected to come from Incivek sales, and its associated royalties and collaboration revenue.
Only two eggs in Vertex’s basket
Looking ahead, most of the company’s future is pegged to the future of Kalydeco. If Vertex can expand its line of CF drugs, with Kalydeco holding down the core, this company will take off very fast. However, if these variant combinations get hit by other safety concerns, the stock could give up its gains pretty quickly.
It’s clear that Vertex is aware of the risk of being exposed to only two drugs – one that is fading fast and another one that could become an industry-altering blockbuster. Therefore, the company is spending heavily to diversify its pipeline into other treatments, most notably influenza with its experimental drug VX-787.
A prime takeover target
With a potential blockbuster drug in its portfolio, Vertex is often cited as a prime takeover target for larger pharmaceutical companies. Last year, a rumor circulated that Johnson & Johnson, Bristol-Myers Squibb and Gilead Sciences were all interested in acquiring the company.
Many analysts, such as those from Credit Suisse, believed that Johnson & Johnson was the most realistic suitor, since the two companies partnered up back in 2006 to develop and market Incivek in Europe and other markets. As part of that deal, Johnson & Johnson paid Vertex an initial payment of $165 million and followed it up with further licensing and milestone payments. Those continuing payments could be negated if Johnson & Johnson acquires Vertex.
However, considering that Incivek sales are expected to drastically decline over the next few years, that dated argument doesn’t seem to carry much weight. Moreover, Vertex is already locked in a partnership with Johnson & Johnson in its aforementioned HCV research partnership.
Gilead and Bristol-Myers Squibb, on the other hand, could still be interested, considering that Vertex still has a key foothold in the experimental HCV market.
The Foolish Bottom Line
Vertex Pharmaceuticals is an exciting company to follow. It stands at a crossroads, and its treatments for cystic fibrosis could change the world. In addition, declining sales of Incivek can still contribute to its top line and buy it some more time to increase its CF research, and other experimental treatments.
Although Vertex is unlikely to achieve profitability anytime soon, investors are still expecting big things from the company – that’s why the stock has risen 65% over the past twelve months even though it lacks any real fundamental scaffolding.
Leo Sun has no position in any stocks mentioned. The Motley Fool recommends Gilead Sciences, Johnson & Johnson, and Vertex Pharmaceuticals. The Motley Fool owns shares of Johnson & Johnson.
The article This Biotech’s Cystic Fibrosis Treatments Could Catapult It To Profitability originally appeared on Fool.com and is written by Leo Sun.
Leo is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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