Another >US$100bn biotech that is facing the cliff like its peers, but might be safer

$100bn biotechs like Vertex Pharmaceuticals (NDQ:VRTX) typically get to their position through ‘blockbuster drugs’ with periods of market exclusivity, which eventually come to an end and cause revenues to fall as cheaper biosimilars come onto the market. The average biotech is facing a loss of revenue of 38%. Of course, some are higher (i.e. Amgen is 67% and Merck is 56%) while others are lower. And Vertex is one of them.

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Introduction to Vertex Pharmaceuticals

Vertex has an unconventional history for a >$100bn biotech. It was founded in 1989 in Boston, Massachusetts (where it remains headquartered to this day, but has an office in Sydney) by Joshua Boger and Kevin Kinsella. The company became known for a rational‑drug‑design approach (rather than pure combinatorial chemistry) in small molecules and for focusing on cystic fibrosis.

CF a genetic disorder that causes a mutation in the CFTR gene, leading to abnormally thick and sticky mucus that primarily affects the lungs and digestive system. The company has broadened its focus in recent years into other diseases – as depicted by it US$4.9bn purchase of kidney disease-focused Alpine Immune Sciences in 2024. Nevertheless, CF is its main objective.

The number of CF patients is ~100,000. The company has estimated slightly below this number (i.e. 92-94,000) but recently secured formal reimbursement in multiple countries that together represent ~15,000 additional patients.

Vertex’s FY 2025 guidance is US$11.9bn to US$12.0bn in total revenue, a large part of which stems from its CF portfolio

Still facing a cliff, but…

…the threat is not as big as it is for other biotechs. This is because it has a broader range of products, its patent expiries go well into the 2030s and it is working on newer generations of its products.

Its key 4 assets are Trikafta, Kalydeco, Orkambi and Symdeko. All of these are part of the CF disease space, representing different generations and segmentations of the CFTR‑modulator market) and contain ivacaftor.

The latter two (Orkambi and Symdeko) are pure therapy, Kalydeco is a drug and Trikafta is the flagship product and a newer generation. In December 2024, a next-gen triple-combination in Alyftrek was approved, with tezacaftor (which is in Trikafta) but combining vanzacaftor and deutivacaftor.

Trikafta has some of its patents extending to December 2037 and while information for Alyftrek is not avaliable, it is hard to imagine the patent expiring before the mid 2030s. Kalydeco and Orkambi patents expire later this decade, but they are not as high a proportion of revenues.

So is it completely safe?

Well no.

Vertex doesn’t face a large block of revenue losing exclusivity imminently. The company’s revenue is less reliant on many legacy blockbusters at risk in the short term, unlike some large pharma companies with many older drugs. Vertex’s model (franchise + next‑gen + pipeline) means they have built‑in replacement assets and fewer products in the immediate imminent expiry window. Beyond the loss of revenues, it will also mean the lesser likelihood of cash outflows to acquire new businesses.

It does face 6% of its revenues being at risk when patents expire later that decade. Moreover, there are other risks, including competition, pricing/reimbursement pressure and the pressure for the R&D department to come up with new-generation drugs. There could also arguably be a sense of complacency that other biotechs with a higher share of revenues won’t have.

Vertex’s strategy of introducing next‑gen versions (like Alyftrek) has helped extend the exclusive period of the overall franchise, but this will need to continue.

And shares have fallen over 10% this year with back-to-back disappointments in its earnings. Granted, one of these (Q2) was in part because of the failure of its experimental non-opioid pain drug VX-993 in Phase 2, as well as the cancellation of plans to expand use of its approved pain drug (Journavx) for lumbosacral radiculopathy after discussions with the FDA.

But Trikafta came in slightly below consensus even though sales grew 2% year on year and the shortfall was partly attributed to biosimilars in Russia.

Nevertheless, analysts expect shares to bounce back, calling for a mean target price of US$480.92 vs $419.10 right now. They call for $12bn in revenue in 2025 vs $11bn in 2024, followed by $13.2bn in 2026, $14.3bn in 2027 and $15.6bn in 2028. After the company made a ~$500m loss in 2024, they expect a $3.9bn profit in 2025, then $4.5bn in 2026 and $5.3bn in 2027. The company is trading at 21x its CY26 P/E and a 0.14x PEG. Not bad.

Conclusion

If you want a big biotech that has less of a risk of the Biotech Patent Cliff than others, it’ll be difficult to find stocks in a better position than Vertex. With this being said, the company is not entirely risk-free as the recent results and investor reactions to them demonstrate.