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Vertex upgraded to buy by JMP

March 17, 2017

JMP Securities upgraded Vertex (NASDAQ: VRTX) from Market Perform to Market Outperform with a price target of $115.00.

Analyst Liisa Bayko commented “We view 2017 as a critical year for VRTX’s cystic fibrosis (CF) franchise driven by proof-of-concept data for its “triple combo”, which could expand the patient pool by >50% and thus, could be a substantial value inflection point for shares, in our opinion. Laying the ground work for the triple is a new improved “dual”: tezacaftor (VX-661) plus ivacaftor and we look for Phase 3 data for this combination as early as April as the basis for approvals next year. While in and of itself, we project the teza/iva combination could capture an incremental ~$500M from patients who have abandoned Orkambi, mostly due tolerability, but the real value, in our view, is that the combination is a gateway to fully realize the potential of the triple.”

As for the potential takeout, Bayko wrote (emphasis ours) “Based on our analysis of the preclinical and clinical data, we think VRTX will prevail with teza/iva and the triple and despite our opinion that VRTX shares are expensive relative to near-term, top-line growth, we see tremendous long-term value in this franchise driven by the triple combination. We also think securing the triple could put the company in play as a takeout target. Key risks to our thesis include the potential for either teza/iva or the triple to fail and progress on the competitive front, the latter, which we view as mainly headline risk, until the compounds are better vetted for safety and efficacy.”

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