Analysts applauded Vertex Pharmaceuticals' (VRTX, Financial) fourth-quarter and full-year 2020 results, but voiced skepticism about the company's ability to maintain its momentum.
Sales of the company's top-selling drug, cystic fibrosis treatment Trikafta, totaled more than $1 billion in the fourth quarter, beating consensus Wall Street estimates by 4%. Trikafta's performance helped boost sales of Boston-based Vertex to $6.2 billion in 2020, a number the company expects to surpass by 10% this year.
Despite the sparkling results and rosy outlook, Vertex's stock is down 6% this week to under $218. That puts its shares at about the halfway point between its 52-week high and low.
So what's the problem? What comes next, according to analysts. While SVB Leerink expects Trikafta sales to grow at an annual compound rate of 16% through 2025, revenue from the company's other cystic fibrosis drugs is forecasted to decline. That means the company is leaning heavily on medications in the pipeline to fill the gap, and analysts wonder if they can.
So far, the pipeline treatments have been uninspiring. In October, safety issues forced the company to end phase 2 studies of its drug to treat AATD, a genetic disorder that may result in lung disease or liver disease.
Phase 2 data from a study of another Vertex drug for AATD should be available in the first half of the year, but analysts were a bit irked when, during the fourth-quarter earnings call, CEO Reshma Kewalramani, M.D., was seen as holding his cards a little too close to the vest when he would only say the drug's safety assessment is continuing.
The other Vertex drugs in the pipeline are treatments for a wide assortment of illnesses, from kidney disease and pain to muscular dystrophy and Type 1 diabetes.
FiercePharma reported that analysts at JPMorgan also have concerns about Vertex's long-term outlook. In a note to investors, the investment bank said that while it was impressed with the company's 2020 revenues, "a more important emerging angle to the story is how [Vertex] identifies the potential next legs of growth outside of CF throughout 2021."
Wall Street also was displeased that the company continues to avoid questions about its ability to deploy capital effectively and, most importantly, the size and value of its cystic fibrosis business.
Analysts would like Vertex to use its cash hoard, estimated at $7 billion, to purchase assets or companies.
Over the last few years, the company has made some deals, buying Semma Therapeutics and Exonics Therapeutics.
More recently, Vertex joined forces with privately-held Skyhawk Therapeutics to research drugs that can modify RNA. On the earnings call, management did reveal it was open to buying more advanced assets that are likely to be pricier than recent deals.
If you listen to Wall Street, Vertex shares are a bargain. The 25 analysts offering 12-month forecasts set a high target price of $347 and a low just below where the stock trades now. They rate the Vertex a buy.
Disclosure: The author has no position in Vertex.
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