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Here's Why Vertex Pharmaceuticals' Fourth Quarter Was Better Than It First Appeared

By Brian Orelli, PhD and Keith Speights - Feb 19, 2021 at 7:50AM

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The biotech's revenue and earnings growth were better than the reported results.

On the surface, Vertex Pharmaceuticals' (VRTX 1.54%) fourth-quarter earnings didn't look particularly good. But there's more to the story as contributors Brian Orelli and Keith Speights note in this video from Motley Fool Live, recorded on Feb. 8. The duo also discuss the difference between the launch of Tikafta in the U.S. and the rollout of the drug in Europe, where it goes by the name Kaftrio.

Brian Orelli: First up, Vertex Pharmaceuticals earnings, this is a cystic fibrosis specialist. Ticker here is VRTX. Revenue was up only 15% year-over-year, but that's a little misleading because the year-ago-quarter, that fourth-quarter of 2019, had about $155.8 million associated with sales of Orkambi in France. France set the price after you start selling, then you'd make up the difference in a single-quarter. It was a one-time shot there. If we do an apples-to-apples comparison, it was 29% growth, which is pretty solid. The company has four drugs on the market, but this has really become a [Trikafta] story, that's their triple combination. The drug has started cannibalizing some of the sales of the single and double combination drugs, but it's also capturing new patients. It's definitely growing faster than it's just cannibalizing the other drugs. I've got some more data on the bottom line, but any thoughts on the revenue side?

Keith Speights: Another great quarter from Vertex. They basically enjoy a monopoly in cystic fibrosis. Like you said, it's a Trikafta story now that that drug was approved. If I recall, Brian, it was approved five months earlier than they thought it would be approved in the U.S., and hit the market in late 2019, and became a nearly instant blockbuster and accounted for all of [inaudible] growth in 2020. Like you said, it's cannibalizing some of their other drugs, but the company doesn't mind that one bit, because it's just that successful of a new product launch throughout 2020 for Trikafta. So great story for Vertex in this quarter. I don't think anybody had anything to not really like about the results.

Orelli: Yeah. The thing about Trikafta is that it can treat patients that those singles and doubles can't treat, so that's how it's growing faster than just cannibalizing the other drugs. On the income side, the income was up just four percent in a GAAP basis, but on an adjusted basis, it was up 49%. That the difference is the aforementioned Orkambi adjustment and then taxes, which I think that some of that is also Orkambi. On the guidance side for 2020, they're looking for $6.7 billion to $6.9 billion. There'll only be 8% to 11%, so definitely a slowdown. But we've lapped [Trikafta] going on the market in the U.S., so I think that's the reason for the slowdown.

Speights: Yeah. If there was anything disappointing, it was the guidance, but I think it was not unexpected that we would see a dramatic slowdown. Again, and it's just because Trikafta took off so quickly in the US market. The drug is marketed under the brand Kaftrio in Europe. Europe is going to be a little slower ascent for Vertex, because the company has to secure reimbursement deals and then work country by country. Even though it got approved by the European Union, it has to work with each individual country, and that takes a little time. So I think we'll see a slower ramp up in sales, but one that extends over a longer period of time as well for Trikafta/Kaftrio.

Orelli: Right. That's pretty much how all the drug launches go. They'll use a launch in the U.S. and have an immediate growth spurt, and then in Europe, it tends to be slower, but as you've said, longer. They didn't give guidance for earnings, but presumably, I would expect them to grow faster because the cost of getting into those 8% to the 10% range sales is not going to be that high on the cost side.

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