Image: Vertex Pharma continues to soar toward our fair value estimate.
By Brian Nelson, CFA
On Wednesday, January 26, Vertex Pharma (VRTX) reported solid fourth-quarter results that showed continued advancement across its clinical pipeline. For background reading on our thesis on the net cash rich, free cash flow generating biotech tied to established cystic fibrosis (CF) therapies and CRISPR technology, please read: “Best Idea Vertex Pharma Boosts Guidance (Again), Buying Back Stock While Awaiting Key Clinical Trials (December 2, 2021)” and “Best Idea Vertex Pharma Marching Forward with Innovative CRISPR Technology” (August 31, 2021).” Following fourth-quarter results, we’re reiterating our $250 per share fair value estimate at this time.
Image: Vertex finished an exciting 2021, and we look forward to continued strong performance across its cystic fibrosis portfolio and advancement in its pipeline of potentially transformative genetic therapies that target serious diseases. Image Source: Vertex Pharma.
During the fourth quarter, full year product revenues advanced an impressive 27% on a year-over-year basis thanks to strong growth in its cystic fibrosis TRIKAFTA/KAFTRIO combination, where revenue jumped 55%. Non-GAAP net income soared 31% in the period. In the press release, the company noted that it is “treating more patients than ever before (in cystic fibrosis) and advancing (its) next-in-class triple regiment into pivotal studies.”
Management also was optimistic about its pipeline beyond its commercialized and cash-flow generative cystic fibrosis line-up, and we are most interested in what we describe to be a call option on CRISPR technology through its partnership with CRISPR Therapeutics (CRSP), despite some recent setbacks.
Here’s what management had to say about its outlook for 2022: “As we move into 2022, with multiple programs in mid- and late-stage development, there are important milestones ahead. With continued innovation in CF and progress across our pipeline, we are poised to serve many more patients and drive revenue and earnings growth in 2022 and many years into the future.”
The executive team is calling for full year 2022 product revenue guidance in the range of $8.4-$8.6 billion, an implied growth rate of 13.6%, and we continue to monitor developments across its pipeline as it targets major milestones in the coming months and years.
In addition to its cystic fibrosis therapies, advancing pipeline and exposure to CRSPR technologies, we’re huge fans of its balance sheet and free cash flow generation. This is partly why we like Vertex Pharma more than some of the other pure play biotechs, especially those exclusively exposed to the budding area of CRISPR gene-editing research and development.
At the end of 2021, Vertex Pharma held $7.5 billion in cash and marketable securities, and no traditional short- and long-term debt (it held ~$557 million in finance lease liabilities). We’ll have the full-year free cash flow numbers once Vertex files its Form 10-K, and we expect them to be robust (through the first nine months of 2021, for example, Vertex hauled in $1.6 billion in operating cash flow and spent just $173.3 million in capital expenditures.
Concluding Thoughts
The biotech arena is difficult to navigate, which is why we tend to play it a bit more conservative than most. Vertex Pharma has an established, cash-flow generating portfolio of cystic fibrosis therapies, which has helped to establish a net cash rich balance sheet and a steady stream of robust free cash flow, unlike many biotechs that need external capital and are at risk of never reaching commercialization. We’re excited about Vertex’s clinical pipeline of potentially transformative genetic therapies, and we like its exposure to CRISPR gene-editing technology, which could be a huge business in the years ahead. Vertex Pharma remains our favorite biotech play and an idea in the simulated Best Ideas Newsletter portfolio.
Vertex’s Fourth Quarter and Full Year 2021 Financial Results Slide Deck (pdf) >>
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Brian Nelson owns shares in SPY, SCHG, QQQ, DIA, VOT, BITO, and IWM. Valuentum owns SPY, SCHG, QQQ, VOO, and DIA. Brian Nelson’s household owns shares in HON, DIS, HAS, NKE. Some of the other securities written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.