Vertex Pharmaceuticals Incorporated invents, develops, and commercializes pharmaceutical products. Its pipeline consists of seven commercialized products targeting cystic fibrosis (CF) and sickle cell disease, as well as eight programmes in Clinical trial Phase 2 or 3 targeting pain, sickle cell diseases (SCD), and multiple diseases associated with gene mutations. As the leader in CF treatment, its four commercialized CF drugs by revenue share in FY23 was TRIKAFTA (also known as Kaftrio): 90.6%, and other CF drugs: 9.4%.
Investment Overview
Vertex was – and will continue to be – a beneficiary of the growing cystic fibrosis (CF) market. Vertex's performance since 2017 indicates that its share price is mostly driven by revenue growth from its key CF medications. Orkambi, a CF medication launched in July 2015, generated US$980mn in net product revenue in FY16 and US$1.3bn in FY17, propelling the stock price to double in 2017. The upward trend continued following the release of its blockbuster, Trikafta, in October 2019. Trikafta's net product revenue reached over US$3.9 bn (62.2% of revenue) in FY20 and increased to around US$8.9 bn (86.1% of product revenue) in FY23, causing the share price to rise 135%, from $173 to $407 (FY19 - FY23). Vertex has launched numerous CF medications to cater for CF patients of all ages, allowing it to continue tapping into the burgeoning CF market, which is predicted to increase at a CAGR of 4.8% between 2023 and 2030. Furthermore, reimbursements for Vertex's CF products are available in the United States and other regions. Approximately half of all CF patients in the United States are covered by publicly sponsored programs like Medicaid, making Vertex's CF medications more accessible.
Strong operating cash-flow and stabilized high margin. Vertex has strategized to develop a triple therapy for CF patients to maintain its leadership in CF, discouraging new entrants from the CF market and preserving its market size. Revenue grew 11% to US$9.9bn in FY23 with a high profit margin of 39%. Without any dividend payments, Vertex’s net income increased 9% to US$3.6bn and has a sufficient cash reserve of US$3.5bn in FY23.
We have a HOLD rating on Vertex, with a TP of US$450. Our TP is based on 37.7x 25F PE, 2.7x SD above its five-year average. Our HOLD rating is premised on its high reliance on cystic fibrosis products which are at risk due to increased competition.
Key risks:
High reliance on the Cystic Fibrosis portfolio. Out of Vertex's seven approved medications, six are indicated for CF. While Vertex leads the growing CF industry, its position may be challenged by competitors, posing a significant risk to the company's revenue and growth prospects. In July 2024, Sionna Therapeutics licensed in three Abbvie medicines for its portfolio. All seven medications under Sionna's pipeline are indicated for CF with mechanisms different from Vertex. Current data, according to Sionna, suggest potential for higher efficacy compared to standard of care, which presents a significant risk to Vertex's leadership position.
The downside of CRISPR. Exa-cel may be the first CRISPR-based gene editing therapy in the market upon approval. CRISPR’s primary risk is the potential off-target genome editing effects, an undesirable deletion of gene which may lead to another genetic disease, an increase of cancer risk or dead. As phase 4 of a clinical trial starts after market entry, the potential risk of adverse long-time effects of Exa-cel cannot be omitted.
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