Even After Rally, Vertex Undervalued

The favorable news both derisks Vertex’s CF franchise and sets the foundation for the firm’s penetration into harder-to-treat CF populations with a triple combination regimen. Weaker-than-expected Orkambi revenue has tempered investor enthusiasm over the past year, given the regimen’s side-effect profile. The next-generation tezacaftor/ivacaftor regimen showed that it was just as effective as Orkambi, if not slightly better, without the debilitating side effects. Pending successful approval by the FDA, we expect the new double combo regimen will help Vertex capture patients that either discontinued Orkambi treatment or were deterred by the side-effect profile, strengthening the regimen’s position in the largest subset of CF patients. While the population with one F508del mutation and residual CFTR protein function is fairly small--just over 1000 people in North America, Europe, and Australia--we believe this will prove to be a modest tailwind. The next potential catalysts are the confirmation of the U.S. Food and Drug Administration's approval of tezacaftor/ivacaftor, and phase 2 results from Vertex’s triple combination therapy in the next wave of CF patients.

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