Vertex Earnings: Weaker Than Expected Results and Higher Costs Weigh on Quarter

Narrow-moat Vertex Pharmaceuticals delivered softer-than-expected first-quarter results, as higher costs and weaker Trikafta revenue outside of the US weighed on the quarter's performance. While Trikafta sales in the US increased 9% to $1.66 billion thanks to strong patient demand and higher net realized pricing, Trikafta revenue outside of the US decreased 5% to $1.11 billion as strong international demand was offset by a revenue decline in Russia due to an unauthorized generic version on the market. Management believes this issue in Russia is a limited and isolated one, but it could potentially pose a risk to Trikafta sales. In addition, Vertex implemented a pause on its multiple ascending dose portion of the phase 1/2 study of VX-522, a nebulized CFTR mRNA therapy partnered with Moderna to assess a tolerability issue. We assign this pipeline candidate a 10% probability of approval due to its early stage of development. We think the decision to pause rather than an immediate discontinuation indicates that management is likely encouraged by the other data generated by the study.