VRTX Stock: Why Did ARK Sell This Biotech?

Vertex Pharmaceuticals [VRTX] is a Boston-based biotech with research facilities in San Francisco and Oxford.

The company’s product pipeline is focused on several conditions and diseases, including cystic fibrosis, diabetes, kidney disease, and muscular dystrophy.

This stock spotlight will discuss how Vertex cornered the market for cystic fibrosis drugs, and why a sickle cell treatment should boost VRTX stock. It will also highlight competition in the cystic fibrosis market and why a diversified product pipeline could be crucial to driving future growth.

Vertex Boosted by Access to Cystic Fibrosis Drugs in England

In June, Vertex reached a deal with the UK’s National Health Service (NHS) over prices for its cystic fibrosis drugs, Kaftrio, Orkambi, and Symkevi.

David Ramsden, CEO of Cystic Fibrosis Trust, hailed the pricing deal as a “fantastic moment” for those living with the condition.

It was also welcome news for the biotech company, as it was only at the end of last year that the country’s health sector regulator, the National Institute for Health and Care Excellence, published draft guidance declaring the drugs — to which NHS patients had access under a temporary deal agreed in 2020 — too expensive.

Another Shot in the Arm for VRTX Stock

The news is another boost for the Vertex share price, which is up 40.1% in the past year through August 5 and up 17.2% since the start of 2024. VRTX stock recorded an all-time high on August 1.

For comparison, as of August 1, the Krystal Biotech [KRYS] share price is up 45.5% in the past year and 45.7% since January 1, while the Arcturus Therapeutics [ARCT] share price is down 34.4% and 37.2% over the respective periods.

According to Stockcircle, Cathie Wood dumped approximately 34,100 VRTX shares in Q1 and approximately 14,600 shares in Q2. ARK Invest held 75,464 shares at the end of June.

However, Baillie Gifford added VRTX stock to its health innovation-focused mutual fund in the three months to June. “We believe that Vertex offers significant upside potential combined with a resilient core drug franchise,” the firm wrote in its quarterly update. It noted that cash generation from cystic fibrosis drugs is “fuelling drug launches in pain, sickle cell disease, and potentially type 1 diabetes”.

Vertex Raises Revenue Outlook on Strength of Cystic Fibrosis Drugs

Vertex’s cystic fibrosis portfolio is the company’s only source of income. In Q2, revenue generated by Kaftrio — sold as Trikafta in the US — rose by just 8.6% to $2.5bn year-on-year. Sales of other cystic fibrosis products fell 22.5% to $196m over the same period.

Growth in the portfolio in the three months to June has given Vertex the confidence to raise its full-year guidance slightly, from a range of $10.6bn–10.8bn to $10.7bn–10.9bn.

However, the company reported a net loss of $3.6bn versus a net profit of $916m in the year-ago quarter, though this was attributed to acquisition expenses.

Neither Arcturus nor Krystal is generating revenue from cystic fibrosis. The former provided a promising update for its inhaled mRNA-based therapeutic last month, and the latter’s gene therapy is currently at the trial stage.

Given its dominance in the cystic fibrosis drug market and the modest projected revenue growth, VRTX stock seems fairly valued. How quickly the company can commercialize drugs for other conditions and diseases is likely to have an influence on the stock’s long-term attractiveness.

VRTX Stock: The Investment Case

The Bull Case for Vertex

While cystic fibrosis drugs are clearly Vertex’s bread and butter, the company should soon be posting revenue from Casgevy, its gene-edited therapy for sickle cell disease. The drug is already approved for patients aged 12 and above in the US, UK, the EU, Saudi Arabia, and Bahrain.

The company has established 35 treatment centres around the world as of end-June, up from 25 at the end of March; the goal is to open 75 such facilities.

William Blair analysts said in May that they expected Casgevy to generate $84.4m in sales for the year. Though this pales in comparison to revenue from its cystic fibrosis portfolio, diversifying the product pipeline will be key to future growth.

The Bear Case for Vertex

Vertex may be the market leader in cystic fibrosis drugs, but it could soon face competition from Sionna.

The biotech start-up recently licensed a group of cystic fibrosis drugs from AbbVie [ABBV]. The US pharma giant abandoned all work in cystic fibrosis in 2022 after disappointing trial data.

As Global Data analysts put it last week, the Sionna–AbbVie tie-up “can redefine cystic fibrosis therapeutics”. They point out that while advances have been made in treating the condition, a number of patients still suffer from symptoms, so new drugs need to be developed to address this.

Conclusion

Vertex will continue to dominate the cystic fibrosis drug market — for now. Investors should watch out for updates on Casgevy revenue, which could be reported from Q3. They should also keep tabs on future updates on other drugs that are in the trial phase.

The nature of the biotech industry means drug trials can make or break a company. The fact that Vertex is already generating healthy revenue from its cystic fibrosis drugs means the company is well-placed to continue investing in researching and developing treatments and therapies to bring to market.

For more in-depth stock analysis and guides, including on biotech and pharma stocks, subscribe to Foresight, OPTO’s growth-oriented research platform.