$Vertex Pharmaceuticals(VRTX)$ $Nasdaq100 Bull 3X ETF(TQQQ)$
Vertex Pharmaceuticals Incorporated invents, develops, and commercializes pharmaceutical products. Its pipeline consists of four commercialized products targeting cystic fibrosis (CF) and 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 FY22 was TRIKAFTA (also known as Kaftrio): 86.1%, and other CF drugs: 13.9%.
Investment Overview
Vertex was – and will continue to be – a beneficiary of the growing CF market. Vertex’s performance since 2017 implies that its share price is primarily driven by the revenue growth of its key CF drugs. The Orkambi – a CF drug launched in July 2015 – net product revenue reached $980m in FY16 and $1.3bn in FY17, driving the stock price, which doubled within 2017. The upward trend continued due to the launch of its blockbuster – Trikafta in October 2019. The net product revenue generated from Trikafta reached around $3.9bn (62.2% of revenue) in FY20 and grew to around $7.7bn (86.1% of product revenue) in FY22, driving the share price to increase 67% – from $173 to $289 (FY19 - FY22). Vertex has launched several CF drugs to cater for CF patients in different age groups, enabling it to continue tapping into the expanding CF market, expected to grow at CAGR 9.12% during 2022-2030. Moreover, reimbursements of Vertex’s CF products are available in the US and international markets. About half of the CF patients in the US are covered by publicly funded programmes, such as Medicaid, allowing Vertex’s CF drugs to be more accessible.
While CF remains the focus, Vertex is diversifying its pipeline. Vertex prepared for five potential launches within the next five years, with most of these new drug candidates targeting different diseases like SCD and Type I diabetes, enabling Vertex to explore new niche markets. Vertex plans to launch Exa-cel, the first CRISPR-based gene-editing therapy for SCD or beta-thalassemia (TDT), during late 2023 - 1Q 2024. Vertex engages with government payers to secure reimbursed access to reach out more SCD or TDT patients, allowing it to Exa-cel to be penetrated.
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 18% to $8.9bn in FY22 with a high profit margin of 37%, up 6% vs. FY21. Without any dividend payments, Vertex’s net income increased 41.8% to $3.3bn and its net operating cash flow grew 56.2% to $4.1bn in FY22, revealing its sufficient cash reserve.
Vertex pricing was under criticism. In February 2023, provoked by the high list price of Trikafta, a group of patients and their families in four countries initiated legal and regulatory steps to force their government to allow cheaper version of Trikafta to be available. Looking backward, the pricing of Orkambi was under criticism in 2019. Therefore, Vertex’s CF drugs may be susceptible to competitors and substitutes.
The potential rejection or delayed approval. Beside Exa-cel, Vertex had three drug candidates under the pivotal programme, and one of them is mRNA therapy, still new. A delayed approval is possible as the development of mRNA therapy has been traditionally challenged by various technical problems, such as the instability of mRNA and delivery of mRNA drug to the target sites.
Risks
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.
DYODD
@MillionaireTiger @TigerStars @Daily_Discussion @TigerEvents
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.
