Vertex Pharmaceuticals Incorporated (VRTX Quick QuoteVRTX - Free Report) reported second-quarter 2024 results on Aug 1. Adjusted loss per share of $12.83 was wider than the Zacks Consensus Estimate of a loss of $11.50. The significant loss in the quarter was due to costs related to the $4.9 billion acquisition of Alpine Immune Sciences closed in May.

Revenues of $2.65 billion were in line with the Zacks Consensus Estimate. Total revenues rose 6% year over year, primarily driven by higher sales of its cystic fibrosis (CF) drug Trikafta/Kaftrio (marketed as Kaftrio in Europe) in younger age groups. Trikafta generated sales worth $2.45 billion, up 9.3% year over year.

Based on a strong performance in the first half, Vertex raised its total product sales guidance from a range of $10.55-$10.75 billion to $10.65-$10.85 billion for 2024.

The stock has declined around 8% since its second-quarter results. Nonetheless, a single quarter’s results are not so important for long-term investors, and the focus should, rather, be on the company’s strong fundamentals. Let’s understand the company’s strengths and weaknesses to better analyze how to play the stock in the post-earnings scenario.

Vertex enjoys a dominant position in the CF market. Vertex’s CF sales continue to grow, driven by its triple therapy, Trikafta/Kaftrio. While CF remains the main area of focus, Vertex has seen rapid success in its non-CF pipeline candidates’ development in the past year.

Let’s delve deeper.

Casgevy Diversifies Commercial Opportunity

Vertex and partner CRISPR Therapeutics’ (CRSP Quick QuoteCRSP - Free Report) one-shot gene therapy Casgevy was approved for two blood disorders, sickle cell disease (SCD) and transfusion-dependent beta-thalassemia (TDT), in multiple regions in late 2023/early 2024. Casgevy’s approval has diversified its commercial opportunity. 

Vertex and CRISPR Therapeutics’ Casgevy is the first-ever CRISPR/Cas9-based therapy to be approved anywhere in the world. Vertex and CRSP believe Casgevy has the potential to be a one-time functional cure for SCD and TDT patients, with an estimated patient population of approximately 35,000 across the United States and Europe.

Vertex is making rapid progress with the launch of Casgevy and is also making great progress with payers. Vertex expects to record Casgevy sales from the second half of 2024.

New Products on the Way

Vertex has additional near-term launches planned. These include suzetrigine for acute pain and vanzacaftor triple for CF.

Vertex’s new drug application (NDA) seeking approval for suzetrigine (formerly known as VX-548) across a broad label in moderate-to-severe acute pain is under review with the FDA. The FDA has granted a priority review to the NDA, with a decision expected on Jan 30, 2025.

Vertex’s NDA seeking approval for vanza triple, a next-in-class triple combination regimen for treating people with CF aged six years and older, is under review with the FDA. The FDA has granted priority review to this NDA, with a decision expected on Jan 2, 2025. Vertex’s regulatory application for vanza triple is also under review in the EU and some other countries. Vanza triple is a combination of vanzacaftor, a CFTR potentiator, deutivacaftor, a CFTR corrector and tezacaftor. This new once-a-day oral combination medicine has the potential for enhanced patient benefit than Trikafta patients and has become a new standard-of-care treatment in CF. It can potentially treat CF patients who have discontinued Trikafta or other Vertex CF medicines. It can also improve dosing (once daily) and lower the royalty burden.

Vertex also plans to initiate a pivotal phase III program of suzetrigine in diabetic peripheral neuropathy, a form of peripheral neuropathic pain caused by damage to nerves, in the third quarter of 2024. Vertex has rapidly completed enrollment in a phase II study of suzetrigine in patients with painful lumbosacral radiculopathy, another form of peripheral neuropathic pain. Data from this study is expected in late 2024. Vertex believes suzetrigine has the potential to transform the treatment paradigm of pain, both acute and neuropathic. Pain is an area with limited treatment options, mostly highly addictive opioid-based medications.

Robust Pipeline

In CF, Vertex is evaluating its medicines in younger patient populations and aims to have small-molecule treatments for most people with the condition. Additionally, Vertex is developing an mRNA therapeutic, VX-522, in partnership with Moderna (MRNA Quick QuoteMRNA - Free Report) for approximately 5,000 people with CF who do not make CFTR protein and who cannot benefit from its CFTR modulators.

The Alpine acquisition added povetacicept to Vertex’s pipeline. Vertex believes povetacicepthas “pipeline in a product” potential. Povetacicept is designed to target two proteins, namely BAFF and APRIL, which are jointly responsible for the cause of multiple serious autoimmune diseases. A phase III study on povetacicept for the treatment of IgA nephropathy is expected to begin in the third quarter. Povetacicept is also being evaluated in two phase II basket studies, one in renal diseases and the second in B cell mediated cytopenias.

Vertex has a rapidly advancing mid- to late-stage pipeline in other disease areas like APOL1-mediated kidney diseases, alpha-1 antitrypsin deficiency and cell therapy for type I diabetes. Many of these candidates represent multibillion-dollar opportunities. This year is expected to be a catalyst-rich year for Vertex. It has plans to advance inaxaplin, povetacicept and suzetrigine (for DPN) into phase III studies this year. Several important clinical milestones are expected over the next few months in its CF and non-CF portfolio.

Valuation, Estimates and Price

Vertex’s stock has gone up by 132.4% in the past three years, mainly due to its solid pipeline progress and strong CF sales. The stock has been trading above its 200-day moving average for several months.

So far this year, Vertex’s stock has risen 14.5% against the industry’s 4.4% decline. The stock has also outperformed the sector as well as the S&P 500, as seen in the chart below.

VRTX Stock Outperforms Industry, Sector & S&P 500

Image Source: Zacks Investment Research

The stock is trading at a premium to the industry, as seen in the chart below.

VRTX Stock Valuation

Image Source: Zacks Investment Research

The Zacks Consensus Estimate for earnings for 2024 has declined from $17.09 to $6.28 per share over the past 30 days due to acquisition costs. For 2025, earnings per share estimates have declined from $17.71 to $17.62 over the past 30 days.

VRTX Estimate Movement

Image Source: Zacks Investment Research

Conclusion

The lukewarm second-quarter performance, declining estimates, a premium valuation and the recent price drop has sent investors wondering if they should sell the stock. Though the stock has declined post its second-quarter results, its performance has been consistently strong over the past few months. The declining earnings estimates are due to the costs related to the Alpine acquisition.

Vertex is a great stock to have in one’s portfolio based on its strong overall financial performance and robust pipeline progress. Vertex faces minimal competition in the CF franchise. CF sales are expected to remain strong despite a slight slowdown in the growth rate. Casgevy and suzetrigine (if approved) will provide the necessary diversification from the CF franchise. Its dependence on just the CF franchise for growth was a concern for several analysts but the company is gradually resolving it. The new drugs will propel its top line in future quarters.

Though VRTX’s stock currently looks expensive, we don’t see any need to sell the stock as the company has growth potential. Those who already own the stock may retain it for some time to see if its CF sales continue to rise and how the Casgevy launch progresses. Vertex presently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Those who don’t already own the stock may consider buying it at the recent dip if they want to keep it for a long timeframe.