Investors have been focusing on what's next for Vertex Pharmaceuticals (VRTX 1.43%) for quite a while. The company's main business of cystic fibrosis (CF) treatments has brought in billions. But everyone wants to see the company expand beyond that specialty.
It looks like Vertex is on its way. This year, the company expects to file for regulatory approval of its treatment for blood disorders. And it has several other promising non-CF candidates in the pipeline. All this is positive. But it's also important to take a close look at Vertex's CF treatments -- for clues about where they may be a few years down the road. Could this billion-dollar business be getting even bigger? Let's find out.
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A business driving profit
First, a little background. Vertex sells four CF treatments. But the latest, Trikafta, generates the lion's share of revenue. It brought in $1.7 billion in the first quarter. Total revenue reached $2 billion. And, importantly, this business is driving profit. The company reported a non-GAAP operating margin of 56%. And net income climbed to $762 million. That's on a GAAP basis.
Trikafta could potentially treat 90% of all CF patients. But right now, Trikafta hasn't reached its full audience. There are three reasons: Some countries just recently agreed to reimburse Trikafta -- so patients haven't yet started treatment. Other countries haven't yet decided on reimbursement. And, finally, Trikafta hasn't yet won approval in younger age groups; the company is working to expand the label to these patients. In North America, Europe, and Australia, an additional 25,000 people could benefit from Trikafta, Vertex said.
Right now, Vertex dominates the CF market. The company said in an earnings call back in 2020 that it's set to maintain its leadership until at least the late 2030s. And in its earnings call last week, Vertex reinforced the idea by saying "we continue to strengthen our leadership for the long term."
It's clear Trikafta hasn't reached its peak revenue. But Vertex isn't relying on that treatment alone. Instead, Vertex is working on becoming its own rival. What do I mean by that? Vertex is progressing on a candidate that may be even better than Trikafta. The company's triple combination candidate has the potential to beat Trikafta in efficacy. And its once-daily format makes it more convenient too. Patients take Trikafta twice daily in the form of three tablets. So, if anyone unseats Trikafta, it's likely to be Vertex. Vertex expects to complete enrollment in the candidate's phase 3 trial by the end of this year or early next year.
A second future plan
But that isn't Vertex's only future plan for the CF market. The company also is working on a potential treatment for the 10% of patients who aren't candidates for its current medicines. These patients don't produce the CFTR protein -- so can't be helped by Vertex's drugs that aim to fix the faulty protein.
Here, Vertex has partnered with Moderna on a candidate to address that population. The idea is to program lung cells to make functional CFTR protein. The challenge has been delivering the mRNA. But the partners have made a breakthrough. They showed they could deliver CFTR mRNA in vitro -- and in vivo to the bronchial epithelial cells in nonhuman primates. In the second half, the companies plan on requesting regulatory authorization to launch clinical trials for the program.
What does this mean for investors?
It's positive that Vertex advances non-CF candidates -- and broadens its business across other therapeutic areas. But it's also important to remember that Vertex's CF story is far from over. Instead, it continues to grow. And, even better, Vertex maintains global leadership in the field.
All of this means Vertex offers a very balanced profile: The company's main business generates billions, and that's set to continue well into the future. And Vertex also may be on its way to commercializing non-CF products too. Down the road, those could add to Vertex's already strong growth.
At the same time, Vertex trades for only 28 times trailing 12-month earnings -- that's compared to about 200 back in 2018. The shares are looking pretty cheap considering all the company has to offer.
Today, Vertex is a great buy -- for the potential of its pipeline and for the outlook of the blockbuster business that has powered it along so far.
