On February 10, 2025, Vertex reported consolidated financial results for the fourth quarter and full year ended December 31, 2024, and provided its FY2025 financial guidance. Product revenue of $2,912.0 million for the fourth quarter and of $11,020.1 million for the year ended December 31, 2024, exceeded Kingswood Capital estimates of $2,775.0 million and $10,883.1 million by 4.9% and 1.3%, respectively. However, GAAP EPS of $3.50 for the quarter and $(2.08) for FY 2024 fell 12.5% and 24.5% short of our forecast of $4.00 and $(1.57).These numbers reflect higher than anticipated R&D expenses and effective tax rates.

Vertex issued FY 2025 revenue guidance of $11.75-12.0 billion, reflecting expectations for continued growth in cystic fibrosis, continued uptake of CASGEVY for sickle cell disease and transfusion-dependent beta thalassemia, as well as early contributions from the commercial launch of JOURNAVX for acute pain. The company predicted combined GAAP R&D andSG&A expenses of $5.55-$5.70 billion (including approximately $100 million of acquired in-process R&D [AIPR&D] expenses), as well as a non-GAAP effective tax rate of 20.5%-21.5%.

Vertex continues efforts to diversify its product base byadvancing multiple development programs into late-stage clinical trials and toward commercialization. Phase 3 trials are ongoing in chronic pain, APOL1-mediated kidney disease, IgA nephropathy (IgAN), and Type 1 diabetes.

Sustained execution has helped Vertex achieve both a strong operating margin and cash position, allowing continued, significant investments in its pipeline and commercial capabilities. We reiterate our BUY rating and $500 price target on the stock in light of ongoing diversification of the company’s revenue base, disease areas of focus, R&D pipeline, and operating geographies, which we expect will build long-term value for shareholders.

Shares of Vertex Pharmaceuticals gained over 7%, moving from $438 on January 30 to $470 after the company announced the FDA approval of its first-in-class, non-addictive, non-opioid oral pain drug, JOURNAVXTM (suzetrigine), for adults with moderate to severe acute (short-term) pain.

JOURNAVX is a highly selective NaV1.8 pain signal inhibitor that targets the voltage-gated sodium channel NaV1.8, relative to other NaV channels. NaV1.8 is expressed in peripheral pain sensing neurons (nociceptors), transmitting pain signals from the periphery to the brain. JOURNAVX functions by intercepting and inhibiting peripheral pain signals before they can reach the brain.

In addition to opening up a third market stronghold for Vertex, beyond cystic fibrosis and sickle cell disease/beta-thalassemia, we consider the approval a significant public health milestone, as JOURNAVX represents the first new class of pain medicine approved in more than 20 years, creating an opportunity for Vertex to establish a new standard of care in pain management.

The medicine also addresses a previously unmet market need for a non-opioid treatment that delivers effective acute pain relief without addictive potential. 80 million Americans are prescribed a medicine for moderate to severe acute pain every year, which typically results from tissue injury following surgery, accidents or injuries. About half (40 million) of these prescriptions are for opioids, and nearly 10% (4million) of acute pain patients initially treated with an opioid will continue to use opioids for extended periods of time. About 85,000 of these patients will develop opioid use disorder on an annual basis.

JOURNAVX will be sold in the U.S. at a wholesale acquisition cost of $15.50 per 50mg pill. Approved for twice-daily use, the medicine represents a significant economic opportunity for Vertex with blockbuster peak-sales potential.

In clinical trials, JOURNAVX proved safe and effective, without evidence of addictive potential. The drug’s efficacy was tested in two randomized, double-blind, placebo- and active-controlled trials of acute surgical pain, both of which showed a statistically significant reduction in pain with JOURNAVX compared to placebo. While JOURNAVX delivered pain control similar to a weak opioid, it did not outperform it.

The most common adverse events in clinical trial participants receiving JOURNAVX were itching, muscle spasms, increased blood levels of creatine phosphokinase, and skin rashes.

Suzetrigine is also being evaluated in a Phase 3 pivotal trial for patients with chronic peripheralneuropathic pain (PNP) and a Phase 2 trial for patients with painful lumbosacral radiculopathy (sciatica).

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.