Some investors might be at least a little more nervous about Vertex Pharmaceuticals (VRTX 2.34%) now than they were only a few days ago. Why? The big biopharmaceutical company provided its third-quarter update after the market close on Monday.
What are investors' specific concerns? How serious are those concerns? Here are four reasons some might worry about Vertex -- and how those reasons are easily debunked.
NASDAQ: VRTX
Key Data Points
1. Vertex is slipping because it missed Wall Street's Q3 revenue estimate
The obvious reason to worry after Vertex's Q3 update is that the company missed Wall Street's revenue estimate. There were quite a few articles published Monday evening and Tuesday highlighting this fact. But it's important to keep four things in mind.
First, the magnitude of that miss was small. Vertex reported Q3 revenue of $2.48 billion. The average analysts' estimate was for revenue of $2.5 billion. This isn't a "sky-is-falling" moment.
Second, the revenue miss was entirely due to lower sales of Vertex's older cystic fibrosis (CF) drugs. Vertex's top-selling CF drug, Trikafta, beat Wall Street sales estimates.
Third, Vertex still blew the consensus earnings estimate for Q3 out of the water. The drugmaker posted adjusted earnings per share of $4.08 compared to the average profit estimate of $3.97.
Fourth, the company raised its full-year revenue outlook. Vertex now expects CF product sales of around $9.85 billion, up from its previous guidance of sales between $9.7 billion and $9.8 billion.
2. It's going to take a long time for exa-cel sales to ramp up
The U.S. Food and Drug Administration (FDA) has established PDUFA dates for exa-cel of Dec. 8, 2023, and March 30, 2024, in treating sickle cell disease and transfusion-dependent beta-thalassemia, respectively. It's widely expected that the FDA will grant approvals in both indications. However, some investors might be concerned that it will take a long time for exa-cel sales to ramp up.
Vertex COO Stuart Arbuckle perhaps added fuel to the fire of those worries with his comments in the Q3 conference call. Arbuckle first explained the complicated and somewhat lengthy process involved with exa-cel treatment. He then said, "Given the multiple steps and the duration of the journey, we expect 2024 to be a foundational year for exa-cel."
That prompted an analyst later on the call to question if Vertex wasn't comfortable with consensus sales estimates for exa-cel. Arbuckle responded that he didn't know what the consensus 2024 estimate for the therapy was.
It's true that the process with exa-cel includes three phases -- pretreatment, cell collection and manufacturing, and treatment -- all of which take several months. Vertex won't recognize revenue until the third phase. However, this lengthy process won't impact the demand for the curative therapy. Most importantly, Arbuckle reaffirmed that Vertex sees "a very large commercial opportunity" for exa-cel.
3. The vanzacaftor triple-drug combo could only cannibalize Trikafta's sales
Other investors could be worried that Vertex's vanzacaftor triple-drug CF combo could only cannibalize Trikafta's sales and not boost overall revenue. Vertex plans to announce results from late-stage studies of the combination therapy in early 2024 and then move forward with regulatory submissions if all goes well.
Arbuckle acknowledged in the Q3 call that Vertex expects many patients on its other CF therapies will switch to the vanzacaftor combo. However, he also said that there's a big growth opportunity in attracting the more than 6,000 patients globally who have discontinued CFTR modulators.
4. VX-548's first phase 3 study results must be disappointing, since Vertex hasn't announced them yet
Vertex plans to announce the results from three late-stage studies of non-opioid pain drug VX-548 in early 2024. One of those studies has already wrapped up. This could cause some to speculate that the first results must be disappointing, since Vertex hasn't announced them yet.
CEO Reshma Kewalramani was asked about this in the Q3 call. She replied that Vertex plans "to unblind, analyze, and share the results all at the same time" because it needs the results from all three trials to pursue a broad label in treating moderate-to-severe acute pain. Notably, if the data from the first study that has already concluded aren't unblinded yet, Vertex doesn't know what the results are. Kewalramani added, "I'll just leave it at our goal is to have a positive set of three studies."
No worries?
I don't think any of these are good reasons to worry about Vertex. However, there's no such thing as a worry-free biotech stock. Vertex could experience clinical, regulatory, or commercial setbacks, just as any drugmaker could.
Overall, though, I think Vertex's prospects look very good. Exa-cel, the vanzacaftor triple-drug CF combo, and VX-548 all hold the potential to be huge success stories. Vertex also has other promising pipeline candidates. The stock should be a big winner over the next decade and beyond, in my view.
