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Vertex Pharmaceuticals Shares Drop on Disappointing Sales, Quarterly Loss

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Some Wall Street analysts say the company's stock is still a buy based on drugs in development. Initially a hepatitis C drug stock, cystic fibrosis is seen as the next big potential source of revenue for the biotech company.

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MINYANVILLE ORIGINAL Shares of Vertex Pharmaceuticals (NASDAQ:VRTX) are dropping after the company reported disappointing sales results for its hepatitis C and cystic fibrosis treatments.

Announcing that it lost $57.5 million in the third quarter, Vertex said it booked $254 million in revenue from hepatitis drug Incivek and $49 million from its cystic fibrosis treatment Kalydeco. Sales of both drugs, which make up all of Vertex's product revenue, fell short of Wall Street analysts' expectations.

The company did reiterate an estimate that Incivek sales would be as much as $1.25 billion this year. The drug was approved in May of last year.

Vertex's stock dropped 13% to $44 in midday trading Friday. The stock is down from a high of almost $65 per share in May but is still up by almost a third this year on hopes for the company's development of a combination therapy for cystic fibrosis.

Kalydeco was approved earlier this year for a rare form of cystic fibrosis affecting patients with a genetic defect. Vertex is testing the drug in combination with an experimental treatment known as VX-809. Study results released last month supported earlier testing that showed the combination was effective. (See Vertex Pharmaceuticals Cystic Fibrosis Treatment Appears to Work in a Study.) Vertex also is testing Kalydeco with another experimental drug. If Vertex succeeds with an effective cystic fibrosis drug combination in clinical trials, it would bode well for possible approval and that would significantly broaden the patient population for Kalydeco. If all goes well, Kalydeco could be Vertex's second blockbuster drug after Incivek.

Vertex initially grew to a sizable market cap based on hope for Incivek, and the company is studying next-generation treatments for hepatitis C. Later this year, it will disclose results of a so-called proof-of-concept study of an experimental influenza medicine. This year, with new CEO Jeffrey Leiden, Kalydeco has been the big story of this stock. But hope for that drug is more of a long-term investment as the just-released quarterly results deflated near-term enthusiasm. Kalydeco's sales outlook for its approved use doesn't look very robust.

"Despite the limited near-term growth prospects of its core products, we believe Vertex represents a compelling longer-term idea in mid-cap biotech," RBC Capital Markets analyst Michael Yee says.

Yee's rationale: A successful combination therapy for cystic fibrosis would bolster the stock to a range from $80 to $90 per share. If the combination therapy doesn't work, the stock should fall to $35, he says.

"Short-term investors might view the stock range-bound and need to wait until early 2013," Yee adds.

Twitter: @brettchase

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No positions in stocks mentioned.
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