Vertex Earnings: Strong Uptake of Trikafta/Kaftrio Drives Growth; Raising Fair Value Estimate 3%

Vertex Pharmaceuticals VRTX reported strong second-quarter results driven by the continued robust uptake of its cystic fibrosis triple-combination therapy, Trikafta/Kaftrio. Product revenue of $2.49 billion represented a 14% increase from the prior-year period. Management raised its 2023 revenue guidance by 1.3% at the midpoint to reflect strong demand for Trikafta/Kaftrio across multiple countries. We have raised our fair value estimate to $314 per share from $306 to reflect Vertex’s strong performance.

Trikafta/Kaftrio accounted for about 90% of total sales during the quarter. We forecast about $9.76 billion in revenue for 2023, representing growth of 9% over 2022. Vertex’s lengthy patent protections and first-mover status in the lucrative cystic fibrosis market continue to support its narrow moat rating. We have a positive outlook for the company thanks to a diverse pipeline that is continuing to make progress.

Vertex’s most advanced pipeline candidate is its gene-editing drug, exa-cel, which is being developed in partnership with CRISPR Therapeutics as a one-time functional cure for two blood diseases: transfusion-dependent beta thalassemia and sickle-cell disease. We assign a 60% probability of approval to exa-cel and anticipate it could reach the market as early as 2024. We forecast exa-cel could hold strong pricing power and become a blockbuster opportunity. In Vertex’s agreement with CRISPR Therapeutics, Vertex would have a 60% share of exa-cel’s sales.

We like that Vertex is using its ample cash flow from its cystic fibrosis business to diversify its drug portfolio. Its pipeline candidates are continuing to make progress; we await additional data readouts for Vertex’s candidates across APOL1-mediated kidney disease, alpha-1 antitrypsin deficiency, type 1 diabetes, and pain. On a probability-weighted basis, we forecast Vertex’s pipeline candidates could account for roughly 30% of total revenue by the end of our 10-year forecast period.