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Here's Why Vertex Pharmaceuticals Incorporated Gained 8% in April

By Cory Renauer – May 8, 2017 at 1:54PM

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The cystic fibrosis specialist vaulted across the profitability threshold, and it looks like further growth ahead.

What happened

Shares of Vertex Pharmaceuticals Incorporated (VRTX -0.91%) a biopharma company focused on treating cystic fibrosis, rose 8.18% in April according to data from S&P Global Market Intelligence. The company entered April on the heels of positive clinical trial results, then exited the month with encouraging first-quarter results.

So what 

Vertex Pharmaceuticals stock rocketed higher in March following late-stage clinical trial readouts that show investigational tezacaftor, combined with Kalydeco, significantly improved lung function for two large groups of patients with cystic fibrosis. The results look good enough to support applications for treatment of patients with two copies of the F508del mutation and those with one copy of the F508del mutation plus a plethora of mutations that lead to residual function of the CFTR protein. According to management, those applications are slated for submission during the third quarter this year.

Pills arranged in the shape of an upward sloping chart.

Image source: Getty Images.

Vertex exited April with a glowing first-quarter earnings report. Product sales jumped 22% over the prior-year period to $481 million. After a $42 million loss in the first quarter of 2016, crossing the profitability threshold this year would have been encouraging. Vertex didn't just cross the line -- it leaped over it with a sale of oncology drugs in development to Germany's Merck KGaA. Although the company would have reported a quarterly profit without the sale, the $230 million it received up front pushed net income up to $248 million for the quarter.

Vertex's ability to reach sustainable positive cash flows is no small feat. The company spent over $1 billion on research and development expenses alone last year, and it's on pace to spend even more this year in order to develop treatments for all the world's cystic fibrosis patients as quickly as possible.

Now what

Investors will want to keep their eyes open for more signs the costly R&D effort will continue bearing fruit. Along with first-quarter results, Vertex stated plans to submit new drug applications for its tezacaftor containing therapy candidate in the third quarter this year. If the investigational combination earns widely expected approvals, it would compete with Orkambi for patients with two copies of the F580del mutation. However, the one copy of F580del plus residual CFTR function mutation group represents a relatively large cross-section of the world's cystic fibrosis patients that still lack effective treatment options.

In the first half of the year, the company expects to complete enrollment of a trial testing the experimental tezacaftor combination as a treatment for another wide swath of the highly heterogeneous cystic fibrosis population. While regulators review applications that could bring the combo therapy to patients with one F580del mutation plus a residual function mutation, the ongoing trial could support a future expansion to those with one F580del mutation plus a gating defect mutation. Success here would go a long way to help Vertex's positive cash flows continue climbing in the years ahead.

Cory Renauer has no position in any stocks mentioned. The Motley Fool recommends Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.

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