VRTX, Vertex Pharmaceuticals Inc / MA
Read top to bottom, the owner's questions in the order an owner asks them: what the business is, whether the record holds, whether it survives and is any good, and what you would be paying. New to the questions? Start with the Method.
The business in brief
read the 10-K →What this business is and what moves its needle, read from the numbers in its filings. The quantitative detail is in the sections below; the verdict is left to you.
- What it is
- Revenue is led by TRIKAFTA/KAFTRIO (86%) and ALYFTREK (7%), with 4 more lines behind.
- Situation
- Cyclical. margins collapse repeatedly across the cycle, a single year misleads; look at normalized, through-cycle earnings and the balance sheet at the trough.
- What moves the needle
- Volume against price, and shelf position. What decides it: whether it can raise prices without losing the customer, and whether the brand still commands its margin.
- Is it a good business?
- Return on capital has run high across the record (median 36%, above 15% in 8 of 9 years), though buybacks and expensed R&D and brands shrink the capital base, so the figure overstates the underlying economics. The steadier read is owner earnings: roughly 32% of revenue reaches owners as cash, consistently. High, durable returns can mark a moat, but whether this one is real pricing power or an accounting artifact is the judgment the 10-K is for.
Every line here is arithmetic from the company's own filings, not a model's opinion, and each figure appears in full in the sections below.
Where the money comes from
read the 10-K →TRIKAFTA/KAFTRIO is 86% of revenue, so this is largely a single-line business.
- TRIKAFTA/KAFTRIO86%$10.3B
- ALYFTREK7%$838M
- Other product revenues7%$820M
- CASGEVY1%$116M
- JOURNAVX0%$60M
- Other revenues0%$31M
From the segment footnote of the company's own 10-K. Shares are of total revenue; the profit bar shows each segment's share of segment operating profit, before unallocated corporate costs.
The record, 2016–2025
realized figures from each filing, no estimates| 2016’16 | 2017’17 | 2018’18 | 2019’19 | 2020’20 | 2021’21 | 2022’22 | 2023’23 | 2024’24 | 2025’25 | TTMTTMMar 2026 | |
|---|---|---|---|---|---|---|---|---|---|---|---|
| RevenueRevenue | $1.7B | $2.5B | $3.0B | $4.2B | $6.2B | $7.6B | $8.9B | $9.9B | $11.0B | $12.0B | $12.2B |
| Gross marginGross mgn | 88% | 89% | 87% | 87% | 88% | 88% | 88% | 87% | 86% | 86% | 86% |
| Operating marginOp. mgn | 0.6% | 5.0% | 20.8% | 28.8% | 46.0% | 36.7% | 48.2% | 38.8% | −2.1% | 34.8% | 38.3% |
| Net incomeNet inc. | ($112M) | $263M | $2.1B | $1.2B | $2.7B | $2.3B | $3.3B | $3.6B | ($536M) | $4.0B | $4.3B |
| EPS (diluted)EPS | $-0.46 | $1.04 | $8.09 | $4.51 | $10.29 | $9.01 | $12.82 | $13.89 | $-2.08 | $15.32 | $16.93 |
| Owner earningsOwner earn. | $180M | $746M | $1.2B | $1.5B | $3.0B | $2.4B | $3.9B | $3.3B | ($790M) | $3.2B | $3.7B |
| ROICROIC | — | 34% | 36% | 34% | 92% | 72% | 99% | 44% | -1% | 26% | 28% |
| Cash & investmentsCash+inv | $1.4B | $2.1B | $3.2B | $3.8B | $6.7B | $7.5B | $10.9B | $13.7B | $11.2B | $12.3B | $13.0B |
| Net debt / (cash)Net debt | ($1.4B) | ($2.1B) | ($3.2B) | ($3.8B) | ($6.7B) | ($7.5B) | ($10.9B) | ($13.7B) | ($11.2B) | ($12.3B) | ($12.9B) |
| Book value / shareBVPS | $4.73 | $8.01 | $17.11 | $23.34 | $32.98 | $38.86 | $53.70 | $67.49 | $63.63 | $72.35 | $75.54 |
Owner’s Scorecard
Will it survive?
- Can it pay its interest? 313.8×ComfortableOperating income $4.2B ÷ interest expense $13M
Operating profit covers interest with the kind of margin Graham wanted for a defensive holding. Necessary, not sufficient, it says solvent, not cheap.
- ConservativeTotal debt $125M ÷ operating income $4.2B
Years of operating profit it would take to repay all debt. A first read, not a credit rating: it's gross debt (not netted against cash) over EBIT (not EBITDA), and a cyclical year distorts it.
- Debt, net of cash +$6.5BNet cashCash $5.1B + ST investments $1.5B − debt $125M
Cash and short-term investments exceed every dollar of debt by $6.5B, on net the company owes nothing, and can act from strength when others can't. It also holds $5.7B in longer-dated marketable securities; counting those, it sits at net cash of $12.2B. Net debt is the leverage figure that matters; the gross ratio above ignores the cash already set against it. Strategic or illiquid investments aren't counted here.
- Capital-hungryDSO 62 + DIO 373 − DPO 102 days
Days cash is tied up between paying suppliers and collecting from customers. Lower is better; a long cycle means growth itself eats cash.
Is it a good business?
- ExceptionalNOPAT $3.6B ÷ invested capital $13.7B (debt + equity − cash)
The rate the business earns on the money tied up in it, Buffett's north star, because over time a stock tracks the ROIC beneath it. Above ~15% sustained hints at a moat; below ~8% the company may destroy value as it grows. Asset-light businesses (R&D expensed, little capital) read artificially high, pair this with Owner Earnings.
- Cash machineOwner Earnings $3.2B = operating cash $3.6B − capex $438M
What an owner could take out without starving the business. That's 27% of revenue. Treating stock comp as the real expense it is (less $686M of SBC) leaves $2.5B. Honest caveat: capex here blends maintenance and growth, so steady-state Owner Earnings may run higher (see capex vs. depreciation).
- Mostly cash-backedCash from ops $3.6B ÷ net income $4.0B
How much of reported profit showed up as operating cash. Above 1× is reassuring; well below suggests earnings lean on accruals. One year is noisy, growth and working-capital swings distort it, and this is operating cash, not free cash. Watch the multi-year trend.
How is the cash used?
- Returns about halfDividends + buybacks $2.0B ÷ Owner Earnings $3.2B
Of $3.2B Owner Earnings, $2.0B (63%) went back to shareholders, $0 dividends, $2.0B buybacks. Net of $686M stock comp, the real buyback was about $1.3B. Returning most of it signals a mature cash machine; reinvesting most could mean a long runway, or empire-building. The split doesn't say which; the return earned on it (see ROIC) does.
- Investing or harvesting? 2.09×ExpandingCapex $438M ÷ depreciation $210M
Descriptive, not a grade. Above ~1× means investing faster than assets wear out (growth, or, sustained for years, today's earnings carrying less depreciation than tomorrow's will). Below means spending less than it's wearing out (efficiency, or a melting asset base). The ratio won't tell you which; the filings will.
Durability & moat, 2016–2025
A moat is a high return that doesn’t fade, reinvested at high returns. Here is what the record says, judgments, not another chart of the numbers.
- Profitable years 8 of 10
Lost money in 2 year(s), look at what happened there before trusting the average.
- Operating margin 1% (FY2016) → 35% (FY2025)
Margins widened over the record, pricing power intact or improving.
- Owner earnings growth +11%/yr
Free cash to owners grew about 11% a year over the record.
- Worst year 2024 · −2.1% op. margin
Operations went underwater in 2024, understand why before trusting the good years.
- Share count +0.6%/yr
Roughly flat share count, little dilution, little buyback.
Solvent is not the same as cheap; growing is not the same as good. These are vital signs, not a verdict, the judgment is yours, and the filing is one click away.
How the cash was used, 2016–2025
Over the record, the business generated $20.6B of operating cash, and how management split it is, as Buffett insists, the job that matters most. Here it reads as a balanced allocator, splitting cash between the business, owners, and the balance sheet.
- Reinvested$2.0B · 10%
- Buybacks$6.1B · 30%
- Retained (debt / cash)$12.5B · 61%
It reinvested $2.0B (10%) back into the business and returned $6.1B (30%) to owners, $0 in dividends, $6.1B in buybacks.
Buybacks are gross of stock issued to employees; net of that, the real return to owners is lower (see Management & pay). And the mix alone doesn't grade management, what matters is the return earned on the dollars reinvested (see incremental ROIC in the durability report).
Management & pay
read the proxy →Two questions Buffett actually asks about pay: is stock compensation, a real expense, whatever the income statement pretends, quietly large, and is the top wildly out of line with the floor. He's no populist about it; he just wants pay that's rational and earned, and comp committees that aren't lapdogs.
- CEO pay ratio80:1
What the chief earns for every dollar the median employee makes, per the 2026 proxy. A high ratio isn't proof of anything, some businesses are genuinely top-heavy in scarce skill, but a runaway figure is where Buffett starts asking whether the board is doing its job or just keeping the chair company.
- Stock-based compensation$686M
The slice of the business handed to employees in shares this year, 6% of revenue, equal to 16% of operating profit. Buffett's oldest accounting fight: this is compensation, compensation is an expense, real whether or not the headline earnings admit it. And note the trap, the cash-flow statement adds SBC back, so the operating cash, and the owner earnings drawn from it, are flattered by exactly this amount; counted as the cost it is, what an owner keeps is lower.
Graham’s defensive-investor test
4 of 6 metGraham gave the defensive investor seven numerical criteria in The Intelligent Investor. Here they are, run mechanically on the filings, his framework, not our verdict. Meeting them is a floor of safety, not a reason to buy; missing one is no veto, since many fine modern businesses fail his strictest liquidity tests by design. The worth is in seeing exactly where a company stands against the canon, every number sourced.
- Adequate size PassRevenue ≥ $2B · $12.0B
Big enough to weather a storm. Graham's 1972 floor was ~$100M of sales (≈ $700M today); we use a $2B revenue line as a conservative modern stand-in.
- Strong liquidity PassCurrent ratio ≥ 2× · 2.90×
Current assets at least twice current liabilities, near-term bills covered without touching the business. Strict by design: many cash-rich modern firms run leaner and miss it, holding their cushion in longer-dated securities.
- Conservative debt PassDebt ≤ working capital · $125M vs $7.3B WC
Graham's rule that borrowings not exceed net current assets. Capital-heavy and buyback-heavy firms routinely fail it, read it next to interest coverage, not alone.
- Earnings stability MissA profit every year (10-yr record) · 2 loss years
Graham wanted earnings in each of the past ten years, the stability a defensive owner leans on.
- Dividend record MissUninterrupted dividends · none paid
An unbroken dividend was Graham's mark of durability. He wanted twenty years; the filings show about ten, and a single suspension breaks the streak. Non-payers, many fine modern compounders, fall outside his defensive net by design.
- Earnings growth PassEarnings +33% over the record · +213%
At least a third more earnings than a decade ago, averaging three years at each end. Net income (not per-share), so stock splits don't distort it, buybacks and dilution show up in the share-count line instead.
- Moderate price —P/E ≤ 15 and P/E × P/B ≤ 22.5 · decided by the price
Graham's valuation gate, the wall he kept between a sound business and a sound investment. Earnings are $15.32/share and book value $72.35/share. Enter a price in “What the price implies” just below for the P/E, P/B, and whether it clears. But this is the rule Buffett outgrew: there's no hard P/E law, and a wonderful business can deserve a far richer multiple if the thesis holds, treat it as the bargain-hunter's floor, not a verdict on the price.
Graham would be the first to say a checklist is a starting point, not an answer. These are his defensive, bargain-hunter's tests, the cigar-butt lens. Buffett and Munger grew past it, paying fair prices for wonderful businesses; that lens lives in the moat and owner-earnings work above, and both still matter. Clearing Graham’s tests earns a closer look; failing them earns harder questions, not a dismissal.
What the price implies
reverse-DCFA price is the one input we don't pull, you bring it. Type today's close (read it off any broker or quote site) and see the owner-earnings growth you'd have to believe to justify it, set beside what Vertex Pharmaceuticals Inc / MA has actually delivered. Nothing is stored; the number stays in your browser.
Enter a price above to run it.
Graham capped the multiple at 15×; Buffett and Munger let that rule go, a wonderful business can deserve 50× if the thesis holds. Read it as the bargain-hunter's floor, not a ceiling on good sense.
The discount rate is your interest rate, what a dollar years from now is worth today, anchored to the long-term Treasury yield (~4–5% today, plus whatever premium you want for risk). Drag it toward the risk-free rate and watch how much growth the price suddenly “needs”: interest rates are gravity on valuations.
Owner earnings $3.7B on 256M diluted shares; net cash $12.9B. This is a lens, not a price target, it says what you'd have to believe, not what the company is worth, and it runs on one year of (noisy) owner earnings at assumptions you can see and change.
What the filing emphasizes, FY2025
read the 10-K →Each year a 10-K must name what could go wrong, in the company's own words. Here are the ones Graham and Buffett would stop on, each set against the figure from the same filings that bears on it, anchored to a period you can find in the record above. We point; the judgment is yours.
- Pricing power & competitionRisk Factors
Whether the company sets its price or takes it. Durable pricing power is the surest mark of a moat; price competition is the surest mark there isn't one.
“JOURNAVX may not gain or maintain market acceptance among physicians, patients, or payors due to various factors, including the availability of lower-cost alternatives, and sales, marketing, pricing, and/or distribution challenges associated with introducing a product into a highly competitive marke…”
From the recordOperating margin38.3% now (TTM), off a 48.2% peak (FY2022) - Supplier & input dependenceMD&A
A choke point upstream. A sole or limited supplier can dictate terms, and a single shortage can stop the line.
“The foregoing risks may be heightened where our products and the materials that we utilize in our operations are manufactured by only one supplier or at only one facility.”
From the recordGross-margin cushion (TTM)86% - Concentrated dependenceRisk Factors
What the whole business leans on, a product, a platform, a partner. Concentration cuts both ways, and the filing is where management has to admit it.
“Risks Related to Our Business and Products Our success depends on our ability to develop and commercialize additional medicines.”
From the recordOwner-earnings margin at stake (TTM)30% - Debt terms & refinancingMD&A
The fine print behind the debt. Covenants and near-term maturities decide who is really in control when a year goes badly.
“The credit agreement requires that we comply with certain financial covenants, including a consolidated leverage ratio covenant and negative covenants, restricting or limiting our ability and the ability of our subsidiaries to, among other things, incur additional indebtedness, grant liens, engage i…”
From the recordBalance sheet (TTM)+$6.5B net cash · interest covered 313.8× - Litigation & contingenciesMD&A
Claims an owner inherits. Most disclosure is boilerplate; this fires only on an actual matter, a named suit, a settlement, a contingency, a number.
“Following periods of volatility in the market price of a company's securities, shareholder derivative lawsuits and securities class action litigation are common.”
A judgment, not a number, weigh it against the filing yourself. - Cyclicality & demandMD&A
How the business behaves when the economy turns. A cyclical earns its keep across the whole cycle, not at the peak.
“In addition, systemic economic downturns, as well as inflationary pressures, such as those observed in recent periods, may adversely impact our business and financial results.”
From the recordWorst year on record−2.1% operating margin (FY2024) - Regulation & policyMD&A
Rules that can rewrite the economics, tariffs, antitrust, data, export controls.
“Prior to receiving marketing approval from the FDA for CASGEVY in December 2023, we accounted for the CRISPR JDCA as a cost-sharing arrangement, with costs incurred related to CASGEVY allocated 60% to us and 40% to CRISPR, subject to certain adjustments.”
A judgment, not a number, weigh it against the filing yourself.
What changed, FY2025 vs FY2024
read the 10-K →Most of a 10-K is boilerplate carried over verbatim; the signal is in what's new. These lines appear this year and weren't there last, figure updates filtered out, so only the language shift remains.
- “We face additional risks in connection with our current and future collaborative arrangements, including with respect to the performance of the collaborator and their compliance with contractual obligations. 36 Our effective tax rate fluctuates, and changes in tax laws, regulations and treaties, unf…”
- “The factors that most significantly impact our effective tax rate include changes in tax laws, variability in the amount and allocation of our taxable earnings among multiple jurisdictions, the amount and characterization of our research and development expenses, the levels of certain deductions and…”
- “The credit agreement requires that we comply with certain financial covenants, including a consolidated leverage ratio covenant and negative covenants, restricting or limiting our ability and the ability of our subsidiaries to, among other things, incur additional indebtedness, grant liens, engage i…”
- “Additionally, even with relevant experience and expertise, drug manufacturers often encounter difficulties in scale-up and production, including difficulties with production costs and yields, quality control, and compliance with federal, state and foreign 33 regulations, which can prevent manufactur…”
- “Maintaining compliance with these extensive regulations is complex, expensive, and time consuming, and failure to comply may result in additional regulatory actions, including recalls, withdrawal or suspension of product approvals, civil and criminal charges, reputational harm, and fines, penalties,…”
Classic text analysis over the filing itself, no model wrote a word of this, and every quote is the company's own.
Peers, Pharma
The same industry, side by side on owner economics, compare, don't rank by a single number.● marks best in the group.
| Company | Revenue | Gross margin | Op. margin | ROIC | Owner earn. margin |
|---|---|---|---|---|---|
| AMGNAmgen Inc. | $36.8B | 67% | 24.7% | 14% | 22% |
| GILDGilead Sciences, Inc. | $29.4B | 79% | 34.0% | 17% | 32% |
| REGNRegeneron Pharmaceuticals, Inc. | $14.3B | 97% | 24.9% | 10% | 28% |
| VRTXVertex Pharmaceuticals Inc / MA | $12.0B | 86% | 34.8% | 26% | 27% |
| BIIBBiogen Inc. | $9.9B | 76% | 28.7% | 11% | 21% |
| ZTSZoetis Inc. | $9.5B | 72% | 37.8% | 26% | 24% |
| IDXXIdexx Laboratories Inc /de | $4.3B | 62% | 31.6% | 51% | 25% |
| MRNAModerna, Inc. | $1.9B | 55% | -158.1% | -37% | -106% |