Vertex Pharmaceuticals: As Strong As Ever In Cystic Fibrosis (NASDAQ:VRTX)

Vertex Pharmaceuticals (NASDAQ:VRTX) is a large ($75 billion market cap) global biotechnology company that has multiple approved medicines (Table 1) that treat the underlying cause of cystic fibrosis (‘CF’). The stock pulled back 5% after mixed earnings. Although revenues were merely in line with Wall Street’s expectations, demand for these drugs is still climbing, with sales in the fourth quarter rising 11% and 2022 was 18% over 2021. TRIKAFTA comprises 88% of the company’s business and will only get better. The FDA granted Priority Review designation and assigned a Prescription Drug User Fee Act (PDUFA) date of April 28, 2023 for the blockbuster drug’s use in children 2 to 5 years of age. Once approved, investors can be reassured that the additional children eligible to receive the medicine will most likely be able to, based on TRIKAFTA’s ubiquitous placement on the nation’s drug formularies.

Table 1. Vertex Pharmaceuticals’ Approved Medicines

Product	Scientific Name	Region	Initial Approval	Projected Expiration	Eligible Age Group	CF Indication
TRIKAFTA	elexacaftor/tezacaftor/ ivacaftor and ivacaftor	U.S.	2019	2037	≥6 years	(1) at least one F508del mutation, or (2) another mutation that is responsive to TRIKAFTA
KAFTRIO	elexacaftor/tezacaftor/ ivacaftor and ivacaftor	E.U.	2020	2037	≥6 years	at least one F508del mutation
SYMDEKO	tezacaftor/ivacaftor and ivacaftor	U.S.	2018	2027	≥6 years	(1) homozygous for the F508del mutation or (2) with at least one mutation that is responsive to tezacaftor/ivacaftor
SYMKEVI	tezacaftor/ivacaftor	E.U.	2018	2028	≥6 years	(1) homozygous for the F508del mutation or (2) with one copy of the F508del mutation and one copy of certain mutations that result in residual CFTR activity
ORKAMBI	lumacaftor/ivacaftor	U.S.	2015	2030	≥12 months	People with CF homozygous for the F508del mutation
		E.U.	2015	2026	≥2 years	People with CF homozygous for the F508del mutation
KALYDECO	ivacaftor	U.S.	2012	2027	≥4 months	People with CF with a mutation that is responsive to ivacaftor
		E.U.	2012	2025	≥4 months	People with CF with R117H mutation or one of certain gating mutations

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Coverage was explored at the 15 largest health insurance companies in the U.S. overall. Combined, these payors control 59% market share, with 38 million covered lives as of 2021. The most common plan was examined when possible and are specified in Table 2. If the insurer offered non-Medicare prescription drug plans (“PDP”) in a state Marketplace (Obamacare), the most populous state was chosen (California > Texas > Florida). Humana (HUM) doesn’t do Exchanges, so their Medicaid plan is the only one in the survey.

How to read Table 2:

Tier # Higher Tiers have higher cost share. Drugs in Tier 4 or higher (in 5+-Tier plans) are non-preferred brands and may also include drugs recently approved by the FDA or specialty drugs and may need special handling.

Sp Specialty drugs are used to treat difficult, long-term conditions and may need to get filled through a specialty pharmacy.

PA Prior authorization is the process of obtaining approval of benefits before certain prescriptions may be filled.

NF A non-formulary drug is not included on a plan’s Drug List. Exception processes such as PA or Step Therapy could be available to request coverage for a NF drug.

X Not Covered drugs are specifically excluded from coverage by the terms of the plan. Patients likely won’t get any reimbursement and will have to pay out-of-pocket for these drugs.

Table 2. 2023 Coverage of Vertex Pharmaceuticals Products at 15 Largest Health Insurance Companies in the U.S.

Rank	Commercial health insurance plans	TRIKAFTA	SYMDEKO	ORKAMBI	KALYDECO
1	Kaiser Permanente [Southern CA Commercial HMO 3-Tier]	4	4	4	4
2	Elevance Health (Anthem) National Drug List 5-Tier	5 PA	NF PA	NF PA	NF PA
3	Health Care Service Corporation
	BCBS Illinois Basic Drug List	Sp	Sp	x	Sp
	BCBS Montana Basic Drug List	Sp	Sp	x	Sp
	BCBS New Mexico Basic Drug List	Sp	Sp	x	Sp
	BCBS Oklahoma Basic Drug List	Sp	Sp	x	Sp
	BCBS Texas Basic Drug List	Sp	Sp	x	Sp
4	UnitedHealth [CA Traditional 4-Tier]	2 PA	2 PA	2 PA	2 PA
5	Centene [Health Net Essential Rx Drug List]	4 PA	4 PA	4 PA	4 PA
6	CVS Health (Aetna Standard Opt Out)	3	3	3	3
7	GuideWell (Florida Blue) ValueScriptRx	6 PA	6 PA	6 PA	6 PA
8	Blue Cross Blue Shield of Michigan [BCN HMO]	5 PA	5 PA	5 PA	5 PA
9	Highmark Healthcare Reform Comprehensive 3-Tier Incentive	3 PA	3 PA	3 PA	2 PA
10	Blue Cross of North Carolina Enhanced 5 Tier	5	5	5	5
11	Humana Rx5	5 PA	5 PA	5 PA	5 PA
12	Blue Cross and Blue Shield of Alabama Blue Saver Bronze	5 PA	5 PA	6 PA	5 PA
13	Blue Cross Blue Shield of Massachusetts	4 PA	2 PA	4 PA	4 PA
15	Independence Health Group [Value formulary 5-tier]	5 PA	5 PA	5 PA	5 PA
Rank	Health Insurance Marketplace plans	TRIKAFTA	SYMDEKO	ORKAMBI	KALYDECO
1	Kaiser Permanente [CA Marketplace]	4	4	4	4
2	Elevance Health (Anthem) CA Select Drug List	5 PA	NF PA	NF PA	NF PA
3	Health Care Service Corporation
	BCBSIL 6 Tier HIM Drug List	5	5	6	5
	BCBSMT 6 Tier HIM Drug List	5	5	6	5
	BCBSNM 6 Tier HIE Drug List	5	5	6	5
	BCBSOK 6 Tier HIM Drug List	5	5	6	5
	BCBSTX 6 Tier HIM Drug List	5	5	6	5
4	UnitedHealth Group [TX QHP Standard]	NF	NF	4 PA	NF
5	Centene [Health Net CA Essential Rx Drug List]	4 PA	4 PA	4 PA	4 PA
6	CVS Health (Aetna Health Exchange Plan: CA)	4 PA	x	x	x
7	GuideWell (Florida Blue) ValueScriptRx	6 PA	6 PA	6 PA	6 PA
8	Blue Cross Blue Shield of Michigan [BCN HMO]	5 PA	5 PA	5 PA	5 PA
10	BCBS North Carolina Essential Q	5	5	6	5
11	Humana [FL Medicaid Preferred Drug List]	x	x	x	x
12	Blue Cross and Blue Shield of Alabama Blue Saver Bronze	5 PA	5 PA	6 PA	5 PA
14	Molina Healthcare [CA Marketplace]	x	x	x	x
Rank	Medicare Prescription Drug Plans	TRIKAFTA	SYMDEKO	ORKAMBI	KALYDECO
1	Kaiser Permanente	5	5	5	5 PA
2	Anthem Blue Cross MedicareRx [B5]	5 PA	x	5 PA	5 PA
3	Health Care Service Corporation
	BCBS Illinois Blue Cross MedicareRx Basic	5 PA	5 PA	5 PA	5 PA
	BCBS Montana Medicare Advantage Classic PPO	5 PA	5 PA	5 PA	5 PA
	BCBS New Mexico MedicareRx Basic	5 PA	5 PA	5 PA	5 PA
	BCBS Oklahoma MedicareRx Basic	5 PA	5 PA	5 PA	5 PA
	BCBS Texas MedicareRx Basic	5 PA	5 PA	5 PA	5 PA
4	UnitedHealth [AARP MedicareRx Walgreens PDP]	x	x	5 PA	5 PA
5	Centene [Wellcare Value Script PDP]	5 PA	5 PA	x	5 PA
6	CVS (Aetna) [SilverScript Choice PDP]	5 PA	x	5 PA	5 PA
7	GuideWell (Florida BlueMedicare Premier Rx)	5 PA	5 PA	5 PA	5 PA
8	BCBS of Michigan Prescription Blue PDP Select	5 PA	x	5 PA	5 PA
9	Highmark Performance Formulary	5 PA	5 PA	5 PA	5 PA
10	BCBS North Carolina Blue Medicare Rx Standard	5 PA	5 PA	5 PA	5 PA
11	Humana Basic Rx Plan PDP	5 PA	5 PA	5 PA	x
12	BCBS Alabama BlueRx Essential	5 PA	5 PA	5 PA	5 PA
13	Blue Cross Blue Shield of Massachusetts	5 PA	5 PA	5 PA	5 PA
14	Molina Medicare Choice Care (HMO)	5 PA	5 PA	5 PA	5 PA
15	Independence Keystone 65 Basic Rx HMO	5 PA	5 PA	5 PA	5 PA

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Every payor covered at least one of the drugs, which landed in very favorable tiers on some plans. Vertex struck out in Florida’s Medicaid. Yet, California’s Medicaid, with 15 million enrolled, allows access to all the drugs after a PA process. When ORKAMBI was approved in this population in 2018, Vertex’s market grew by 1,300. However, TRIKAFTA will likely gain more, as eligible patients only need one copy of F508del, the most common CF gene mutation, not both as with the earlier drug. Not to mention, children 6 years and up take tablets, but younger ages take packets, which cost double and are more profitable.

The first data from Vertex’s Phase 3 open-label study of TRIKAFTA in children 2 through 5 years of age presented at November’s North American Cystic Fibrosis Conference did not disclose the customary percent predicted forced expiratory volume in one second (ppFEV1) efficacy endpoint, but improvements in sweat chloride concentration and lung function, as measured by the lung clearance index, suggest that such positive data was submitted to the FDA. Because in terms of head-to-head efficacy, TRIKAFTA/KAFTRIO > SYMDEKO/SYMKEVI > KALYDECO, most patients will eventually be switched to TRIKAFTA, which also protects Vertex from the potential loss of exclusivity by KALYDECO in a few years. KALYDECO will still have an important role, and is up for its own FDA Priority Review with a PDUFA date of May 3, 2023 in children from 1 month to <4 months of age.

Turning globally, at J.P. Morgan’s 41st Annual Healthcare Conference last month, Vertex raised their estimated number of CF patients in the U.S., Europe, Australia, and Canada to 88,000, up from 83,000. Management thinks there are more than 20,000 patients who are eligible or could benefit from CFTR modulators, but are not currently on therapy, mainly from younger age groups and territories early in the launch phases. Consequently, Marketing Authorization Applications were also submitted to both the European Medicines Agency and the Medicines and Healthcare products Regulatory Agency in the United Kingdom. It is reasonable to believe that Vertex can build on last year’s 41% ex-U.S. revenue increase.

To conclude, despite a snapped streak of 20+ quarters of revenue beats, Vertex is a decent buy as a defensive healthcare stock in a bear market. The company operates on very high margins and generated $4.3 billion in operational cash flow. Even though its non-CF pipeline won’t be contributing in 2023, its growth prospects are on par with the industry. Finally, the coming 3 months offer investors two positive catalysts with set dates, but similar filings are under review at FDA counterparts in Europe and the United Kingdom, and approvals could happen within the time frame. This early on, it appears the 2023 guidance of up to $9.7 billion sales (~10% over 2022) is conservative.