Vertex Earnings: Diverse Pipeline Candidates Make Progress; Raising Fair Value Estimate

Narrow-moat Vertex delivered strong first-quarter results, highlighted by 13% product revenue growth year over year and continued progress across its diverse pipeline candidates. Robust uptake of its cystic fibrosis therapy, Trikafta/Kaftrio, delivered $2.48 billion in revenue, accounting for 92% of total revenue of $2.69 billion in the quarter. During the quarter, Vertex submitted regulatory filings for vanzacaftor triple, its new once-daily triple combination cystic fibrosis therapy, to the US Food and Drug Administration and the European Medicines Agency. We have increased our probability of approval for vanzacaftor triple to 75% in our base case, up from 65%, based on its strong data in clinical trials and continued progress. Vertex’s recently announced acquisition of Alpine Immune Sciences for $4.9 billion in cash is also on track to close in the second quarter. We appreciate that this acquisition will expand Vertex's kidney-disease portfolio, as Alpine's leading molecule, povetacicept, is being evaluated as a treatment for IgA nephropathy, a chronic kidney condition that can lead to end-stage renal disease. In phase 2 studies, povetacicept has shown potential best-in-class efficacy, and we like that povetacicept is on track to enter phase 3 clinical trials in the second half of 2024. Pending successful clinical data and approvals, we forecast povetacicept could contribute to revenue growth as early as 2028. We have raised our fair value estimate to $356 per share from $343 based on the higher estimated probability of approval for vanzacaftor triple and upside potential of povetacicept toward the end of our forecast period.