Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) revealed positive results from the recent drug trial for its cystic fibrosis treatment. As a result, analysts at RBC Capital Markets increased their price target from $95 to $120 per share and reiterated their Outperform rating on the drug maker’s stock.
Vertex Pharmaceuticals estimates increased
In a report dated June 24, 2014, RBC Capital analysts Michael Yee and Adnan Butt name a few reasons for increasing their price target. They have adjust their probability of success percentage for Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX)’s dual-drug cystic fibrosis treatment, thus impacting their sales estimates. They are now projecting the company’s cystic fibrosis peak sales to be $4.5 billion.
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They’re including U.S. pricing of about $225,000 with a strong discount on Kalydeco, one of the two drugs included in Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX)’s treatment. The drug is already out but only works on a small percentage of the patient population when used by itself. In spite of the discount they’re assigning to Kalydeco, they’re still well ahead of Wall Street estimates of between $150,000 and $175,000
The RBC team also says Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) enjoys long-term tax benefits that are underappreciated. The company has about a 12% tax rate in Switzerland or Ireland. And finally, they say there’s still a possible long-term heterozygous opportunity, which means there could be potential for further upside.
Vertex Pharmaceuticals is under-owned
The analysts say in the short term, some “fast money” will likely turn a profit on this large move. However, in the long term, they say Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) stock is under-owned by a majority of investors “due to prior binary nature.” As a result, they think the “new money-flow” will come in right as they build a “long-term blockbuster pure-play” franchise for cystic fibrosis treatments with sizeable margins and “big earnings power.”
They believe any potential competitors in cystic fibrosis treatments are pretty far behind Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) and could find it difficult to catch up.