Shares of Vertex Pharmaceuticals dropped 15% last week on news that its closely watched pain drug, suzetrigine, met its primary endpoint of reducing pain from baseline in a statistically significant and clinically meaningful manner, but failed to outperform a placebo in the company’s Phase 2 proof of concept sciatica study.

In the trial, suzetrigine was administered to 102 of 202 patients with lumbosacral radiculopathy (LSR), a condition in which compressed nerves in the spine lead to back and leg pain. The study employed the 11-point Numeric Pain Rating Scale (NPRS), which asks patients to rank pain from 0 (no pain) to 10 (worst pain imaginable).

Valuation. Based on our analysis of available clinical data, we expect the regulatory approval of suzetrigine for acute pain in2025, followed by accelerating revenue and EPS growth in 2026. We recommend investors begin accumulating shares of Vertex during the next 12-18 months. Our 12-month price target of $500.00 (down from $550.00) is based on 2025 projected earnings of $15.79 and a P/E multiple of 31.7x.

Transformative Benefits Prove Durable in Sickle-Cell Diseaseand Transfusion-Dependent Beta Thalassemia; Reiterate BUY Rating

Vertex provided a program update on CASGEVYTM, the first and to date only approved CRISPR/Cas9 gene-edited therapy, at the American Society of Hematology (ASH) Annual Meeting this week, revealing data from long-term follow-up of patients who participated in clinical trials.

Transformative benefits of CASGEVY proved durable in both sickle cell disease (SCD) and transfusion-dependent beta thalassemia (TDT).• CASGEVY’s safety profile is consistent with busulfan conditioning and autologous hematopoietic stem cell transplant.

Efforts to secure regulatory clearance in additional countries, improve patient access, and broaden reimbursement coverage are ongoing.

On November 4, 2024, Vertex reported consolidated financial results for the third quarter ended September 30,2024, and updated its full year 2024 guidance. Product revenue of $2,771.9 million exceeded Kingswood Capital estimates of$2,690.0 million by 3%. GAAP EPS of $4.01 reflected stronger than anticipated operating results and higher interest income, outperforming our $3.79 EPS estimate.

We raise our FY 2024 earnings estimate from $(1.78) to $(1.57) to account for the stronger than anticipated third quarter results and a slight increase in our fourth quarter 2024 revenue projections. FY 2024 earnings are affected by Vertex’s second quarter EPS of $(13.92), due to its $5.0 billion acquisition of Alpine Immune Sciences.

Vertex continues to progress multiple product development programs toward commercialization, expecting two new product launches in early 2025 and advancing three additional programs into Phase 3 testing during the third quarter of 2024.

Sustained execution has helped Vertex achieve strong operating margins and cash position, allowing continued, significant investments in its pipeline and commercial capabilities.

• On August 1, 2024, Vertex Pharmaceuticals reported consolidated financial results for the second quarter ended June 30, 2024, and updated its full year 2024 guidance. Product revenue of $2,645.6 million was in line with Kingswood Capital estimates of $2,660.0 million. GAAP EPS of $(13.92) reflected the $5.0 billion acquisition of Alpine Immune Sciences.
• We update our FY 2024 earnings estimate to $(1.78) to account for the impact of the Alpine acquisition on FY 2024 EPS.
• Vertex continues to exhibit strong momentum behind its multiple product development programs, anticipating two potential new product launches during 2025.
• Vertex sustained its strong operating margins and maintains a healthy cash position post-acquisition, allowing for significant investments in its pipeline and commercial capabilities.