Pharmaceuticals (VRTX – Research
Report) is making headlines for all the right reasons. The
Boston-based company reported Q4 FY2018 earnings on February 5, and the results
were a blockbuster for the company.
the beginning: Vertex is a mid-size drug developer, working on treatments for
cystic fibrosis. There is no cure for CF, and the disease is progressive.
Treatments until now have focused on ameliorating symptoms; Vertex’ new drugs
have taken a different approach and targeted the underlying cause of the
medications Vertex has on the market – Symdeko, Kalydeco, and Orkambi – work by
modifying the incorrect protein expression in the lungs resulting from the
underlying genetic mutation. This novel approach has let Vertex carve out an
exclusive niche in the biotech industry.
So, what else
went right for Vertex in 2018?
the Patient Base…
year, Vertex saw approval of Symdeko in the US as well as the first full year
of sales since Kalydeco’s approval. This significantly increased the number of
cystic fibrosis patients receiving the company’s approved medications. 2018
saw, according to the company’s Q4 report, “…the rapid uptake of SYMDEKO in the
U.S. and the full year impact of KALYDECO label expansions.”
important than just the increase in the patient base, is the potential changing
demographic of the patient base. At the end of 2018 and the beginning of 2019,
both Kalydeco and Orkambi were approved for use in children as young as 2
years. Earlier intervention in the disease promises greater benefits from the
treatment and a longer, healthier life for patients, while also increasing the potential
lifetime use of Vertex products.
fourth quarter numbers reflected the wider patient base and distribution of the
company’s CF treatments. Product revenues for Q4 reached $868 million, and the
company’s outlook going forward is even better: financial guidance for FY2019
suggests product revenues between $3.45 and $3.55 billion.
full year 2018, Vertex reported company revenues of $3.04 billion, a 40%
increase from 2017’s $2.17 billion. Q4 revenues were $870.11 million, compared
to the year-ago quarter’s $651.63 million, a quarterly gain of 33%. Quarterly
EPS was $1.30, far surpassing the forecast $1.05, and more than double last
year’s Q4 EPS of $0.61. Companies don’t often report gains like this.
Higher Share Price
profits, of course, let in turn to higher share prices. VRTX is up 10%
year-to-date, outperforming the 8% gain of the S&P 500. The stock currently
trades for $181, and the average price target, $210, gives an upside potential
of 16%. VRTX shares hold a ‘Strong Buy’ on the analyst consensus.
Looking at the broader picture, VRTX shares have more than doubled in value since December 2016.
Analysts are Excited
analysts started reviewing Vertex stock immediately after release of the Q4
earnings report. Do Kim (Track Record & Ratings),
of BMO Capital, looked at the revenue numbers and saw plenty of room for
further growth: “We increase long-term CF revenue projections, following
another solid 4Q18 beat on revenues and EPS. We believe 2019 CF revenue
guidance of $3.45-3.55bn (consensus $3.51bn) will prove conservative, as it
only accounts for existing reimbursement agreements, with any new agreements
optimistic outlook is reflected in his price target. He sees Vertex hitting
$234 per share, suggesting a 29% upside to the stock.
analyst Cory Kasimov (Track Record &
Ratings) also took an upbeat view of Vertex. Noting the all-around
good news in the company’s earnings conference call, Kasimov continued, “…with
a prevailing dominance in the CF space, a reliably growing top line, and a
pipeline which is coming steadily into focus, we consider VRTX to be one of the
cleanest growth stories in biotech.”
VRTX a 15% upside, with a $209 price target and a ‘Buy’ rating, all clear signs
of his optimism on this company.
In the dry
writing style of Wall Street stock analysis, to say, “this is one of the
cleanest growth stories in biotech,” is equivalent to jumping up and down and
waving a megaphone.
Word from the CEO
Leiden, CEO of Vertex, summed up the quarterly report, and his company’s
successful year. His comments apply as well to a review of VRTX stock: “Through
our continued progress in treating CF and other serious diseases, we believe
Vertex will continue to create revenue and earnings growth in 2019 and beyond.”
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