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Vertex Has "Significant Financial Firepower"

By Brian Orelli, PhD – Aug 6, 2019 at 10:04AM

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A dominant cystic fibrosis franchise drives cash flow.

Vertex Pharmaceuticals (VRTX 3.15%) continued its dominance in cystic fibrosis (CF) in the second quarter, increasing sales as it waits for approval of the next CF cocktail that's under Food and Drug Administration review.

The revenue helped Vertex increase its rainy day fund to $4 billion, up from $3.2 billion at the end of last year.

Vertex Pharmaceuticals results: The raw numbers

Metric

Q2 2019

Q2 2018

 Change

Revenue

$941 million

$752 million

25%

Income from operations

$270 million

$173 million

56%

Earnings per share

$1.03

$0.80

29%

Data source: Vertex Pharmaceuticals.

What happened with Vertex Pharmaceuticals this quarter?

  • Most of the increase in sales came from its newest CF drug, which goes by Symdeko in the U.S. and Symkevi in other countries -- including Germany, where it's off to a strong launch.
  • Sales of older CF medications Kalydeco and Orkambi were up slightly year over year. The latter was especially impressive considering that, for the last few quarters, patients have been switching from Orkambi to Symdeko/Symkevi, resulting in falling sales of Orkambi.
  • Vertex was able to keep expenses in check, allowing for a large bulk of the new revenue to flow down to the operating-income line, although a higher tax rate ate into some of those gains on the earnings line.
  • Last week, Vertex submitted its FDA application to market the triple combination of VX-445, tezacaftor, and ivacaftor. A marketing application in Europe should be filed in the fourth quarter of this year.
  • Vertex and its partner CRISPR Therapeutics (CRSP 5.55%) dosed the first sickle-cell disease patient in a clinical trial testing their gene-editing treatment CTX001.
Clipboard with cystic fibrosis written on it with drugs and a stethoscope

Image source: Getty Images.

What management had to say

Jeffrey Leiden, Vertex's chairman, president, and CEO -- at least until he transitions to executive chairman in April 2020 -- talked about how the company plans to combat drug pricing pressure:

I think the biggest thing we're doing for the future is to make sure that we're making transformational drugs, because at the end of the day, these are the kind of drugs that patients and payers want to pay for and they want us to invest in them. And the best evidence of that is our CF programs here in the U.S., where we've seen very rapid reimbursement from all forms of payer, including government payers, Medicaid, Medicare, as well as the promotional players. And the reason for that is simple: They understand the value of those medicines to patients, and these are the kind of medicines that they actually want to pay for.

Leiden also talked about the potential for acquisitions and licensing deals, saying, "We are accumulating significant financial firepower capital on our balance sheet, and so you should expect to see us do more deals and potentially larger deals."

Looking forward

After a solid first half to the year, management felt comfortable increasing 2019 guidance and now expects product revenue of $3.6 billion to $3.7 billion, up from a range of $3.45 billion to $3.55 billion.

Clearly the next growth driver will come from the triple combination, which will more than triple the number of patients eligible to be treated with Vertex's CF medications. Beyond CF, Vertex has seven medications in five specialty areas that could spur growth in the years ahead.

And let's not forget about that war chest.

Brian Orelli has no position in any of the stocks mentioned. The Motley Fool owns shares of CRISPR Therapeutics. The Motley Fool recommends Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Vertex Pharmaceuticals Incorporated Stock Quote
Vertex Pharmaceuticals Incorporated
VRTX
$293.71 (3.15%) $8.97
CRISPR Therapeutics Stock Quote
CRISPR Therapeutics
CRSP
$67.16 (5.55%) $3.53

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