At the J.P. Morgan Healthcare Conference in San Francisco this week, Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) reported its financial guidance for full year 2015. The company said it expects to report 2015 revenues of $980 million, with its two lead products, Kalydeco and Orkambi, accounting for $180 million and $220 million respectively. Going forward, however, the company expects the former to ramp up in net sales, with a low end target of $670 million during 2016. The majority of these gains will come from extended indications, and if the company is to meet its target, the FDA will need to give the green light to a few supplemental new drug applications (sNDA). One of these is set for review in just a couple of weeks, and if accepted, would open up a market worth just shy of half a billion dollars to Vertex. Ahead of the FDA decision, let’s have a look at what the sNDA addresses, and try and ascertain its chances of gaining approval come PDUFA.

The sNDA is targeting an extension of Kalydeco’s population target size to include people ages two years and older with one of twenty-three residual function mutations, in cystic fibrosis (CF). The drug’s current approval targets a specific mutation that causes circa 4% of the CF cases in the US, and if approved, the sNDA will expand the company’s market by about 1,500 individuals. On the face of it, this doesn’t sound like a massive expansion – cost of trials and the time it takes to negotiate the terms of an sNDA with the FDA should, from an economic perspective, inhibit this sort of small scale expansion. When considered in cahoots with the price of the drug however, things look a little better. When Kalydeco hit markets on the back of its FDA approval back in 2012, Vertex received widespread criticism for its pricing of the drug. On release, Kalydeco cost a little over $260,000 per patient. Today it costs a minimum of $300,000, rising to $360,000 in some instances. The drug is the first (and still the only) drug that targets the underlying cause of CF, rather than the symptoms of the disease, which gives Vertex an essential monopoly in the space – hence its seemingly exorbitant pricing.

Regardless, given that there are no currently available treatments for the 1,500 US individuals with the 23 mutations that Vertex is targeting with Kalydeco and its latest sNDA, chances are the company can hit pretty high penetration on approval. Given the low end price of $300,000, an accepting of the extension from the agency will open up a $450 million (conservative) market. It’s likely that Vertex’s full year 2016 guidance for the drug relies heavily on the company realizing a large portion of this potential.

PDUFA date comes in on February 6, with the drug having been accepted for priority review back in October. The data on which the application is based came out of a phase IIa study, which is not unusual for this type of expansion application, in which 24 people with the mutations in question underwent a course of treatment with Kalydeco. The trial met its endpoint, with all patients in the study showing noticeable improvement from baseline, giving the application some promise from an efficacy perspective. From a safety and tolerability viewpoint, there have been no really serious adverse events reported by the population currently receiving Kalydeco, and for a drug that has been on the market since 2012, this bodes well. The one tripping point might be the pediatric indication. The company is targeting (as mentioned) a minimum age threshold of two years, and the FDA is notoriously (and arguably rightly) very strict on pediatric drugs. Having said this, the drug is currently in use with pediatric patients, and so even though there is an element of risk, in all likelihood the FDA should have no issues.

Chances are we won’t get an advisory panel review before the FDA makes its final decision, as this one looks pretty straight forward. With this in mind, keep an eye out for an update ahead of, or on, PDUFA date. A green light will open up a potentially huge revenue stream for Vertex and – as such – will translate to some immediate upside in its market capitalization. One to watch.