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What: Shares of Vertex Pharmaceuticals (NASDAQ: VRTX), a biotech company primarily focused on the development of medicines to treat cystic fibrosis and cancer, surged 13% in July based on data provided by S&P Global Market Intelligence. The lift in Vertex's stock in July can be traced to two key catalysts.
So what: Arguably, the biggest boost in July for Vertex came from the company's second-quarter earnings report. For the quarter, Vertex reported total cystic fibrosis (CF) product sales of $426 million, a 175% year-over-year increase. Sales of Kalydeco jumped 16%, to $180 million, while the more recently launched Orkambi, which treats a larger CF patient population, generated $245 million in sales. The result was an adjusted net profit of $58 million, or $0.24 per share, which reversed a loss of $131 million, or $0.54 per share, in the year-ago period. Comparatively speaking, Wall Street had been expecting only a $0.21 per-share profit from Vertex in Q2.
Looking ahead, Vertex continues to expect $1 billion to $1.1 billion in Orkambi sales for the full year, with Kalydeco sales of $685 million to $705 million.
The second catalyst for Vertex came on July 6 when the company announced a collaboration with Moderna Therapeutics to develope mRNA-based therapeutics for the treatment of CF. For its part, Moderna will receive $20 million in upfront cash, a $20 million equity investment from Vertex, and is eligible to receive up to $275 million in development and regulatory milestone payments. The collaboration makes sense for Vertex, which is looking to retain its dominance in treating CF.
Image source: Vertex Pharmaceuticals.
Now what: This quarter was everything investors could have expected out of Vertex. Orkambi is well on its way to becoming a blockbuster drug, and Vertex appears capable of delivering growth of between 20% and 40% per year between now and 2019. More importantly, we're beginning to see its forward P/E coming down, which is making the stock more palatable to investors.
The big question is going to be whether or not Vertex Pharmaceuticals can diversify its pipeline beyond CF. Don't get me wrong: Vertex doesn't appear to have any near-term CF threats on the horizon, meaning its CF revenue stream is primed to grow. However, with its product portfolio wholly dependent on CF, it wouldn't take but one or two competitors down the road to completely disrupt Vertex's growth trajectory. The leading candidate to watch here is VX-970, which is being studied in two phase 1/2 trials for non-small-cell lung cancer and triple-negative breast cancer.
For now, I'd suggest investors stay the course with Vertex. It's year-to-date drop does make the stock far more attractive than it used to be; but its sole reliance on CF creates a bit of a longer-term concern in the back of my mind.
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Sean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.
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