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Why Vertex Pharmaceuticals Skyrocketed 17.8% in July

What happened

After reporting results from mid-stage trials showing its multi-drug combination therapies improved lung function in cystic fibrosis patients, Vertex Pharmaceuticals (NASDAQ: VRTX) shares surged 17.8% higher in July, according to S&P Global Market Intelligence.

So what

Vertex Pharmaceuticals already markets two highly successful cystic fibrosis drugs. However, those drugs only address about 30,000 of the roughly 75,000 people worldwide with cystic fibrosis. The company's focusing much of its R&D efforts on exploring additional approaches that could allow its drugs to treat the majority of patients, and mid-stage trial results reported last month suggest it's on the right track.

IMAGE SOURCE: GETTY IMAGES.

A triple-combination therapy comprised of VX-152, tezecaftor, and Kalydeco improved a key measure of lung function in cystic fibrosis patients by 9.7%, while another triple-combo approach comprised of VX-440, tezecaftor, and Kalydeco increased lung function by 12%. The data has management planning to start a phase 3 confirmatory study soon, and eventually, that could clear the way to Vertex Pharmaceuticals' therapies addressing 68,000 of the world's cystic fibrosis patients. 

Now what

The company already markets Kalydeco and Orkambi, two cystic fibrosis drugs that are generating significant quarterly sales. In Q2, for example, Kalydeco's sales were $190 million and Orkambi's sales were $324 million. 

With the company already posting over $2 billion in annualized sales, a potential doubling of the addressable market offers a significant growth opportunity. Of course, Vertex Pharmaceuticals' phase 3 trials could miss the mark, but given their track record in this indication and the phase 2 results, I'm cautiously optimistic.

Overall, Vertex Pharmaceuticals stock isn't cheap. It trades at a forward price-to-earnings ratio of 50, but then again, high-growth biotech stocks are rarely cheap stocks to buy. Assuming Kaydeco and Orkambi continue to win over doctors and patients globally, and Vertex can execute on its strategy to launch more drugs that help more patients, investors who pay that price to buy shares might ultimately end up with a bargain.

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Todd Campbell has no position in any stocks mentioned. His clients may have positions in the companies mentioned. The Motley Fool recommends Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.