Vertex’s Narrow Moat Based on Intangible Assets From CF Drugs; Diversified Pipeline Supports Growth

Business Strategy and Outlook

Vertex was once known for discovering Incivek, a blockbuster hepatitis C drug now overshadowed by a robust cystic fibrosis franchise with megablockbuster potential. The company’s approved cystic fibrosis drugs are Kalydeco, Orkambi, Symdeko, and Trikafta, which will make Vertex eligible to treat about 90% of the CF population, assuming international and pediatric approvals. Vertex is anticipated to maintain its dominant position in CF, given the strong efficacy of its therapies, lengthy patents, and lack of competition, while developing pipeline candidates in other rare indications to spur growth. Cystic fibrosis is a rare indication characterized by a progressive and deadly decline in lung function, affecting approximately 83,000 people worldwide. Since its 2012 launch, Kalydeco has captured most of its target patient population (less than 10% of CF patients with specific genetic mutations) and has become the backbone of combination therapies, including Orkambi, Symdeko, and Trikafta. Orkambi’s launch in 2015 expanded the eligible patient population by adding CF patients with homozygous F508del mutations, but its uptake was slower because of its safety profile. Symdeko’s 2018 launch didn’t come with any worries over safety and contributed over $700 million in revenue in its first year, targeting the same population as Orkambi plus some additional patients. Trikafta, a triple-combination therapy, has had a strong launch since its U.S. approval in 2019, significantly expanding the company’s addressable patient population to heterozygous patients.

Vertex’s comprehensive approach has already shaped the treatment of CF and earned it a dominant position worldwide. The chronic nature of therapy and limited competition on the horizon heighten the CF market’s attractiveness. Given these positive market dynamics, Vertex’s CF program could possibly grow to over $11 billion within the forecast period. Vertex’s pipeline spans several rare diseases, including CTX001 for beta-thalassemia and sickle-cell disease, VX-147 for APOL1-mediated kidney disease, and small-molecule inhibitors for pain. The CF franchise will provide ample cash for the development of these candidates.

Financial Strength

Vertex is in strong financial health, given its robust cash flow generation and low debt. At the end of 2021, Vertex held $7.5 billion in cash and investments and had about $557 million in total finance lease obligations. Vertex reached profitability in 2017, and its cystic fibrosis portfolio continues to expand. The company launched its triple combination therapy, Trikafta, in the U.S. in 2019, and it is expected to operate at maintainable profitable levels throughout the explicit forecast. Vertex has utilized its cash to expand its pipeline outside of cystic fibrosis, which has included acquisitions, collaboration agreements, and ongoing internal research and development. Vertex is expected will continue using its ample cash flow to build a more diversified rare-disease portfolio as it looks beyond the cystic fibrosis market.

Bulls Say’s

The firm’s cystic fibrosis therapies are poised to dominate the lucrative market for the foreseeable future, based on the disease-modifying potential of the drugs, chronic use by patients, and limited competition.

Vertex’s leading drug candidates were mostly discovered in-house, lending credibility to its drug discovery technology and potential to generate additional pipeline candidates.

Vertex’s combination therapies have lengthy patents, protecting the profitable cystic fibrosis portfolio from generics.

Company Profile

Vertex Pharmaceuticals is a global biotechnology company that discovers and develops small-molecule drugs for the treatment of serious diseases. Its key drugs are Kalydeco, Orkambi, Symdeko, and Trikafta/Kaftrio for cystic fibrosis, where Vertex therapies remain the standard of care globally. In addition to its focus on cystic fibrosis, Vertex is diversifying its pipeline through gene-editing therapies such as CTX001 for beta-thalassemia and sickle-cell disease, small-molecule inhibitors targeting acute and chronic pain using non-opioid treatments, and small-molecule inhibitors of APOL1-mediated kidney diseases. Vertex is also investigating cell therapies to deliver a potential functional cure for type 1 diabetes.

(Source: MorningStar)

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