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Vertex rockets on very strong results from its cystic fibrosis pipeline; shares hit our fair value. Vertex's (VRTX) shares spiked Monday morning as the company released interim results for its midstage trial testing its recently approved cystic fibrosis drug Kalydeco in combination with its experimental candidate VX-809. We have long held a bullish outlook on Vertex's prospects, and these results reinforce our view that the firm's cystic fibrosis pipeline could actually provide more lucrative returns than its hepatitis C drug Incivek, which has traditionally claimed the spotlight. Although we may slightly adjust our fair value estimate upward as we increase our assumed probability of approval for VX-809 and move up the drug's potential launch, we already have factored in substantial sales from Vertex's cystic fibrosis pipeline into our valuation. After jumping more than 40% following the release of these results to hit our fair value estimate of $50 per share, Vertex's shares now look about fairly valued. Results announced Monday are from a trial that is studying Kalydeco and VX-809's efficacy in the most common form of cystic fibrosis, the F508del mutation. Although these results are preliminary and only encompass a portion of the data set, this efficacy looks very strong, and the firm plans to start a pivotal trial as soon as possible for the combination treatment (likely to commence in late 2012 or early 2013). Over the long run, we think cystic fibrosis could be a more attractive market than HCV due to its need for chronic therapy and less intense competition on the development front. At its peak, our valuation currently implies more than $2 billion in annual sales from Vertex's cystic fibrosis drugs.

The full edition of this week's Morningstar Healthcare Insights is available on Select. A summary of this week's news is included below.

RHHBY's non-oncology pipeline takes another hit with failure of dalcetrapib; PFE's potential blockbuster RA drug gets FDA panel nod—we think firm's pipeline remains undervalued; boosting our FV for AMGN on pipeline progress of three potential blockbusters; TEVA's revenue growth falls short on EU pricing pressure; margin expansion buoys PRGO's 3Q, but shares still look overvalued; VRTX spikes past our FV on strong data for its cystic fibrosis pipeline; DNDN's 1Q report fuels more volatility for stock, but firm still looks capable of meeting our full-year expectations; VNDA sees good Fanapt growth in 1Q, though we're slightly lowering our FV on a higher near-term cash burn rate; GIVN's 1Q falls short, but not enough to impact our FV; PODD makes progress on next-gen insulin pump