During last month’s J.P. Morgan healthcare conference, Vertex CEO Reshma Kewalramani, M.D., said the company is actively scouting for “tools and technology” to acquire, specifically mid- and late-stage assets to boost its pipeline.
After its fourth-quarter report, Vertex is facing new pressure to make good on that promise.
Vertex’s cystic fibrosis newcomer Trikafta brought in just over $1 billion in sales during the quarter, beating consensus Wall Street estimates by 4%. That helped drive total sales up 29% to $1.6 billion. For the year—Trikafta’s first full year on the market, during which it hauled in $3.9 billion—Vertex’s total sales skyrocketed 55% to $6.2 billion.
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But just how long can Vertex rely on CF to drive growth? Some analysts say they’re worried, particularly about the drug’s reception overseas.
“[W]e believe Vertex’s geographic revenue mix will continue to be heavily weighted to the U.S. until the mid-2020s due to the continued resistance of payers in Europe,” said SVB Leerink analysts in a note to investors, adding that slow uptake in Europe would put “medium-term revenue estimates at risk.”
SVB Leerink estimates Trikafta sales will chart a compound annual growth rate of 16% through 2025, while sales of Vertex’s other CF drugs will shrink. That puts the onus on the company to squeeze value out of its pipeline—a challenging task at best.
“Notwithstanding the company’s catchphrases of ‘cracking the biology’ and ‘pouring on the chemistry,’ their most advanced program is CTX-001,” a phase 1/2 stem cell treatment for sickle cell disease and beta-thalassemia, the SVB Leerink analysts wrote.
They went on to gripe that Vertex’s fourth-quarter conference call indicated “that the company will continue to avoid questions from analysts about their ability to deploy capital effectively” and other issues, including “most importantly, the terminal size and value of their CF business.”
Concerns about Vertex’s pipeline beyond CF intensified in October, when the company pulled the plug on VX-814, its phase 2 drug to treat the genetic disorder alpha-1 antitrypsin deficiency (AATD). During the trial, several patients developed high levels of liver enzymes that were deemed unsafe.
Vertex is developing another drug for AATD, called VX-864, and is expecting data from a phase 2 study in the first half of this year. But when one analyst asked during the conference call for details about any safety signals that might have cropped up in that trial, Kewalramani would only say that the safety assessment “is ongoing.”
Analysts at J.P. Morgan pointed out that Vertex’s fourth-quarter revenue surpassed estimates, as did the high end of its 2021 guidance of $6.7 billion to $6.9 billion in sales. But they, too, expressed worries about the long-term outlook. “A more important emerging angle to the story is how [Vertex] identifies the potential next legs of growth outside of CF over the course of 2021,” J.P. Morgan said in a note to investors.
That brings us back to Vertex’s M&A strategy. With a 40% profit margin, free cash flow of more than $3.5 billion and other assets, the company has “tremendous firepower for transactions,” SVB Leerink said.
When asked for hints about Vertex’s business-development strategy during the conference call, Kewalramani pointed to a few recent deals, including its recent $40 million partnership with Skyhawk to develop drugs that modulate RNA splicing.
But she cautioned that Vertex would offer no “preconceived notions” about the timing or value of any transaction. “It has to be transformative. We have to be able to add value,” she said. “And, when we find that asset and we have the patience and the judgment to be very thoughtful about that, we’re going to be ready to evaluate.”