Vertex Report

USF STUDENT MANAGED INVESTMENT FUND Equity Research January 22, 2020

Vertex Pharmaceuticals Inc.

Rating:

BUY

(VRTX: NASDAQ) Company Overview

Analysts

Vertex Pharmaceuticals is a global bio-tech company that focuses on creating transformative medicines targeting serious diseases within specialty markets. The company has multiple approved medicines that treat the cause of cystic fibrosis, robust pipeline of investigational small molecule medicines, and genetic and cell therapies for diseases.

Investment Thesis • Vertex has a very strong market position with their cystic fibrosis (CF) franchise being the only CF treatment drug on the unpenetrated CF market.

• Their most recent drug TRIKAFTA has increased Vertex’s total eligible patient population from ~45% to 90%.

• Long-term growth strategy geared towards expanding pipeline drugs into other lucrative untapped rare-disease markets.

• Strong balance sheet and ample free cash flow generation that fuels top and bottom-line growth beyond 2020, margin expansion, and a strong growth strategy involving business development and M&A activity.

Historical Return

Investment Metrics Current Price (Jan-20-21) $237.55 Target Price $317.50 Intrinsic Value $320.11 Market Discount 34.58% 52 Week Range $197.47-$306.08

Market Data Sector: Healthcare Industry: Biotechnology Headquartered: Boston, MA Employees: 3,000 CEO: Reshma Kewalramani CFO: Charles F. Wagner Market Cap: 58.7B Beta: 0.81

Valuation Metrics

Historical Performance 230%

Robert Camejo, rmcamejo@usf.edu Rafael Nobre, rafaelnobre@usf.edu Aravind Thota, athota1@usf.edu Mark Zevallos, mzevallos@usf.edu

2019A S&P 500

2020E

Diluted EPS

$4.58

190%

2021E

$9.83

$11.17

24.54X

24.00X

17.11X

16.00X

P/E Ratios 150%

54.06X EV/EBITDA

110%

39.62X 70%

Revenue (mil.) $4,162

30%

$6,102

$6,981

EBITDA Margin % -10% 1/21/16

1/21/17

January 22, 2021

1/21/18

1/21/19

1/21/20

35.95%

USF Student Managed Investment Fund

49.24%

49.47% 1

Company Overview Vertex Pharmaceuticals (VRTX) invests in scientific innovations to develop and produce medicines for people with life-threatening diseases with a focus on specialty markets. The firm was founded in 1989 in Cambridge, Massachusetts with its headquarters located in Boston and its international headquarters located in London. With a substantial focus placed on research and development, Vertex created the first ever medicine to treat the underlying cause of cystic fibrosis which is a genetically inherited rare disease. The firm has multiple research and development sites as well as commercial offices located in North America, Europe, Australia, and Latin America.

The firm currently has four main approved medicines which are TRIKAFTA (elexacaftor/tezacaftor/invacaftor and ivacaftor), SYMDEKO (tezacafotr/invacaftor and ivacaftor), ORKAMBI (lumacaftor/ivacaftor), and KALYDECO (ivacaftor). These four medicines are currently in Phase 4 of the clinical trials and treat about 50% of the 80,000+ cystic fibrosis (CF) patients in North America, Europe, and Australia. The firm is determined to provide treatments for up to 90% of the CF patients as well as pursuing therapeutic treatments for the remaining 10%.

TRIKAFTA (Triple Therapy) The triple combination regimen, was recently approved by the Federal Drug Administration (FDA) in October 2019 for those 12 years and older. The patients must also have at least one copy of the F580del mutation in the cystic fibrosis transmembrane conductance regulator (CFTR) gene or another mutation that is responsive to treatment with TRIKAFTA.

SYMDEKO (Dual Therapy) It was initially approved in both the United States and the European Union in 2018. The drug is for CF patients that are 6 years or older within the U.S. and the European Market that have two copies of the F508del mutation or contain at least one mutation in the CF gene that is responsive to treatment with SYMDEKO.

ORKAMBI (Dual Therapy) It was approved in both the United States and the European Union in 2015 for CF patients that have two copies of the F508del mutation in their CFTR gene. The drug is for patients that are 2 years and older.

KALYDECO (Monotherapy) It was the first drug to be approved by the FDA in 2012 within both the U.S. and European markets that treated the underlying cause of cystic fibrosis. The drug targets patients that are 4 months and older and have at least one mutation within their CF gene that is responsive to KALYDECO.

January 22, 2021

USF Student Managed Investment Fund.

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Cystic Fibrosis Cystic fibrosis (CF) is a recessive, genetic disease that mainly affects the lungs and digestive system. Cystic fibrosis affects over 80,000 people worldwide and there are currently over 30,000 in the United States with around 1,000 new cases diagnosed each year. Of those new cases, 75% are children under the age of 2 diagnosed . Cystic fibrosis causes thickened mucus to form in the lungs, gastrointestinal tract, and other organs. This mucus can make it difficult to breath and lead to severe lung infections. It also affects the pancreatic function by preventing enzymes from breaking down food properly. Cystic fibrosis is a progressive disease that causes persistent lung infections and limits the ability to breathe over time, gradually causing lung damage and respiratory failure.

To inherit cystic fibrosis someone needs to have inherited the defective gene from both of their parents. The defective gene allows for too little salt and water to form outside of the cell which leads to the thicker mucus. When the two carriers of the gene have a child, there is a 25% chance the child will have CF, a 50% chance the child will be a carrier but not have CF, and a 25% chance the child will not be a carrier and will not have CF. There are currently over 10 million Americans that carry the CF gene and are unaware.

Cystic fibrosis patients undergo treatments such as antibiotics, mucus thinners, and nebulizers, but the only medication that directly targets the underlying issue are cystic fibrosis transmembrane conductance regulator (CFTR) modulators. These medications help improve the function of the faulty CFTR protein that causes the thick, sticky mucus and the only four CFTR modulators available are those by Vertex Pharmaceuticals which we previously mentioned.

January 22, 2021

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Cystic Fibrosis Increasing Median Survival Age

Source: 2019 Cystic Fibrosis Foundation Patient Registry Annual Data Report

In 1959, the median age at death for individuals with CF was 6 months. However, those born between 2015-2019 can expect to live beyond 46 years old. The median survival age predictions assume no further improvement in mortality rate and does not consider the impact of CFTR modulators. The increase in survivability and the decrease in mortality rate shows that over future years, these trends should continue especially as more CF patients are being helped by VRTX medications. This could be seen as a benefit as drugs like TRIKAFTA require chronic usage for the rest of the patient's life.

January 22, 2021

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TRIKAFTA Before TRIKAFTA, CFTR modulators could only aid 45-50% of CF patients. Vertex’s newest drug which was first approved in the U.S. on October 2019, TRIKAFTA, is available for patients with at least one F508del mutation in the CFTR gene, which is estimated to represent 90% of the CF population, or the entire population that is eligible to be treated through CFTR modulators. The remaining 10% of the population are for those that require genetic therapies.

Source: Vertex Inv estor Relations

2019

2020

H1 2021

2021

October: FDA approved TRIKAFTA for ages 12+

August: European Commission approved KAFTRIO (TRIKAFTA) for ages 12+

December 2020: Health Canada stated that TRIKAFTA will undergo “Priority Review” meaning that approval for TRIKAFTA will be determined within 180 days.

U.S. expansion for 611 age approval.

Testing for 2–5yearolds. Expand EU label/reimbursements and in other regions such as Australia.

Source: Vertex Inv estor Relations

January 22, 2021

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Growing Market Increasing number of total addressable market by improving registry conditions as well as newborn screening In 2010, the Cystic Fibrosis Foundation announced that all 50 states in the U.S. are required to screen newborns for cystic fibrosis. As a result, the population of people diagnosed with CF has been increasing and the early diagnostic has allowed life expectancy to grow and extend treatments with CF drugs.

Additionally, the success of the U.S. Cystic Fibrosis Foundation Patient Registry has led other countries around the world to develop their own CF Registries, now allowing international countries to mimic US national benchmarking comparisons. A quality improvement program has been developed in Germany that uses their national registry to benchmark the U.S.’s to identify effective methods to improve outcomes. The potential to discover novel approaches to maximize care is magnified considerably when the sharing of ideas occurs at an international level. With better access to international data, Vertex can continue to impact CF and other orphan illnesses.

Source: 2019 Cystic Fibrosis Foundation Patient Registry Annual Data Report

January 22, 2021

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Vertex Strategy Corporate Strategy Vertex Pharmaceuticals corporate strategy and business model is unique and differentiated by their focus on developing high-value therapeutic medicines for serious diseases. They invest in scientific innovation to create transformative medicines for people with serious and in most cases rare diseases. This strategy creates a cycle that promotes innovation, growth, and overall, more value to patients.

This cycle starts with a vast focus and emphasis on research, development and innovation.

This research strategy at its core is to pursue diseases where they understand casual human biology, have validated targets, biomarkers that come from solid research results, and an identifiable rapid path to registration and approval. This is the strategy that they have employed in recent years and has provided the firm success in identifying diseases and tools to deliver success. This is the strategy that they adopted when they made their breakthrough in the CF market and it's what the company will continue to do.

Source: Vertex Inv estor Relations

This strategy when successful results in the introduction of a high-value transformative medicine to a specialty market. What follows is limited SG&A expenses and infrastructure along with strong revenue growth, high operating margins and strong cash flows. The strong cash flows and profitability promotes breakthrough influence on research, development and innovation and thus the cycle starts again. This strategy can be seen in the recent years after the adoption of their first drug Kalydeco, which later created ORKAMBI, SYMDEKO, and TRIKAFTA. Vertex Pharmaceuticals is now in a place where they have entered 6 new disease markets and are working on expanding their innovative medicines to many other markets.

R&D

Operating Margins 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00%

January 22, 2021

$3,600,000 $3,100,000 $2,600,000 $2,100,000 $1,600,000 $1,100,000 $600,000

USF Student Managed Investment Fund

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Pipeline Drugs Apart from the focus on the cystic fibrosis market, the firm currently has several other drugs in their pipeline to treat other diseases such as pain, Alpha-1 Antitrypsin deficiency (AATD), APOL1-Mediated Kidney disease, Type 1 Diabetes, Duchenne Muscular Dystrophy (DMD) and Myotonic Dystrophy Type 1(MD), Beta-thalassemia, and Sickle cell disease (SCD). For 2021, the company expects to show proof-of-concept (phase 2) data for its AATD and APOL1-Mediated Kidney disease medications. For Q4 2020, the company has shown new clinical data for CTX001 with SCD & beta-thalassemia patients and a submission of investigational new drug (IND) in type 1 diabetes patients. Each of the pipeline diseases listed include:

VX-150 (Pain): The medicine is currently in Phase 2 of the clinical trial in which the firm aims to investigate this and other molecules as a potential non-opioid medicine treatment for both chronic and acute pain, including chronic neuropathic and musculoskeletal pain. VX-150 is designed to block pain sensation by selectively inhibiting the voltage-gated sodium channel Nav 1.8.

VX-864 (AATD): AATD is a result of the mutations in the SERPINA1 gene that produces the Alpha-1 Antitrypsin protein in which one must inherit two mutant SERPINA1 alleles. This results in an abnormal folding of the protein which causes liver damage and prevents the protein from reaching the lungs to protect from the digestive effect of certain proteases. In 2020, the firm began Phase 2 for VX-864 as potential treatments for AATD. There are currently 80,000 patients with symptomatic AATD lung disease (US & EU) and 20,000 diagnosed. There is also no current treatment for this but there was approval for Augmentation therapy in the US for only 8,000 patients.

VX-147 (APOLI 1): Inherited mutations in the APOLI 1 gene plays a role in the development of Focal Segmental Glomerulosclerosis (FSGS) which impacts the kidney's filtering units, causing a leakage of protein into the urine, eventually leading to kidney damage. The firm is currently in Phase 2 of the clinical trials for VX-147, a small molecule medicine.

Source: Vertex Investor Relations January 22, 2021

USF Student Managed Investment Fund

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Pipeline Drugs Proof-of-concept (Type 1 Diabetes): This disease is caused by the destruction of insulinproducing cells that are destroyed in people with Type 1 diabetes. The firm is currently in the pre-clinical trial phase in which proof-of concept data has conveyed an opportunity to create large quantities of stem-cell derived human insulin-producing cells and transplant technology to initiate clinical research as a potential investigative treatment.

CRISPR (DMD/MD): DMD is a result of the weaking and breakdown of skeletal muscles over time. The firm is currently in the pre-clinical trial phase in which they are implementing CRISPR gene-editing technology to deliver the virus, AAV9, to the muscles in order to create the specific altercation in the targeted DNA. This restores the dystrophin protein expressed through the reframing of the mutated DMD gene causing the disease.

CTX001 (Beta-thalassemia/SCD): Sickle cell disease (SCD) is a result of change in a single amino acid in the hemoglobin gene that alters the shape of the red blood cells while Betathalassemia is caused by mutations within the hemoglobin that results in severe anemia in patients. CTX001 is an investigative gene-editing treatment aiming to edit a person's hematopoietic stem cells to reduce fetal hemoglobin in red blood cells. Phase 1/2 clinical trials are currently ongoing for this medicine. There are currently 7,000 patients with Beta Thalassemia in the US and EU. The current treatment for this disease is a lifelong transfusion, and very few patients receive curative treatment. SCD has 25,000 patients in the US and EU but few receive curative treatment.

Source: Vertex Investor Relations

January 22, 2021

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Growth Drivers Margin improvement as well as strong cash flow generation.

The company has recently had the approval of TRIKAFTA in the United States and has seen strong uptake in the US with a vast majority of the patients in the US now being treated by TRIKAFTA. This strong acceptance has been a revenue and cash flow growth driver. As a result, the company has seen an increase in its operating margins and expects it to continue going into 2021. The company’s costs have been mostly to cover expenses related with international and pipeline expansion. Vertex Pharmaceuticals also have industry leading margins, with gross margins, operating margins, and profit margins of 87.90%, 44.67%, 43.39% in the most recent quarter. With long-term revenue growth in the mid-teens coming from the assimilation of TRIKAFTA, we forecast operating margin expansion into 2025.

Global Expansion In the most recent quarter, 3Q2020, revenue outside of the United States only made up around 16.74% of revenue. Vertex has largely operated mainly in the United States making up around 75% of revenues in the last 5 years and with the recent approval in Europe, Vertex can now expand into the largest CF market which in 2017 was estimated at 56% of the total CF population. Vertex already secured reimbursement for KAFTRIO (known as TRIKAFTA in the US) in Germany, England, Ireland, Scotland, Wales and Denmark ahead of approval. Recently, the company has published a press release informing that Canada accepted the submission of the triple combination medicine for priority review. The company is also working to secure reimbursement and access for all eligible patients in countries where it does not yet have agreements in place. Over time, the company expects that the majority of patients in the world will be treated. If the expansion plan is successfully achieved, over 20,000 patients will become eligible for its medications in Europe. Europe is also the fastest growing CF population in recent years.

January 22, 2021

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Growth Drivers Label expansion targeting younger age groups and additional mutations.

Vertex has successfully completed a study of TRIKAFTA in patients six to eleven years of age and are on track for filing this quarter and will potentially get an approval in 2021. The company is also in Phase 3 study for two to five years old patients. Furthermore, Vertex is continuing its efforts in nucleic acid therapies to bring forward to treatment to the CF patients that cannot be treated by CFTR modulators. The company has entered in a partnership with Moderna, which has shown progress in the pre-clinical stage using mRNA to serve the last 10% of the CF patients' population. Vertex is still looking for Trikafta approvals for outside the US ages 12+, outside the US ages 6-11, and worldwide ages <6.

Source: Vertex Investor Relations

Leadership position on its niche market The company holds a strong leadership position in cystic fibrosis, and management believes that this position will last a very long time into at least the late 2030s as a base case when considering the high bar set by the benefits of TRIKAFTA to patients and patent coverage for this regimen. TRIKAFTA has a pending patent approval projected to last until 2037 both in the U.S. and European countries. This will allow them to have secured revenues until 2037 ensuring long-term revenue growth.

January 22, 2021

USF Student Managed Investment Fund

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Fundamentals Buy opportunity, potential market overreaction The recent drop from its all-time high stock price has created a unique buy opportunity for this stock. The company discontinued one of its project developments, which caused a brief sell-off. However, this sell-off is not relevant as the discontinuation occurred to a Phase 2 drug for AATD (VX-814) while the company is still working on another phase 2 AATD drug (VX-864). Furthermore, this discontinuation is not relevant given the company’s current liquidity and cash position. Additionally, the company’s position as a market leader in its niche market is likely to keep driving growth and earnings.

Source: Google

Strong balance sheet and cash flow generation to support inorganic growth and sustain long-term investment strategy The company’s cash flow generation is impressive along with a strong balance sheet with almost no debt. This could be a future benefit for the company to finance its own projects and have future access to borrowing at lower rates. Additionally, in order to expand its pipeline, the company may use its available cash to acquire other companies as it has done in 2019 with Exonics Therapeutics and Semma Therapeutics.

Fre e Cash Flow

Net Income

$7,000,000 $6,000,000 $5,000,000

$4,000,000 $3,000,000 $2,000,000 $1,000,000

(-1,000,000)

2015A 2016A 2017A 2018A 2019A 2020E 2021E 2022E 2023E 2024E 2025E January 22, 2021

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Valuation Valuation Methods. For our valuation of Vertex Pharmaceutical, we conducted three different valuation methods, assigning each method to a weight to arrive out our price target of $317.50. We conducted a P/E and EV/EBITDA valuation as well as a discounted cash flow model which used a WACC of 6.81% and a terminal growth rate of 2.25% to get an intrinsic value of $320.11 which indicates that Vertex Pharmaceutical is trading at a 34.14% discount to the market.

Assumptions

Intrinsic Value Calculations Terminal Value of Unlevered FCF Net Present Value of FCF

$80,959,657 $17,843,971

Present Value of Terminal FCF Enterprise Value (+) Cash & Cash Equivalents (-) Debt Equity Value Shares Outstanding

$58,359,607 $76,203,578 $6,461,081 -$484,605 $82,180,053.21 256,728

Intrinsic Value Market Discount Implied Market Cap ($M)

Discounted Cash Flows Fiscal Year end date Discount Factor

$320.11 34.14% $82,180,053 Today 1/14/2021

Operating Profit Tax Rate NOPAT (+)D&A (-)Capex (+) Change in NWC Unlevered FCF PV of Free Cash Flows

Terminal Growth Rate Risk Free Rate Tax Rate Market Risk Premium Beta Cost of Equity Debt Ratio Equity Ratio Debt Equity Average Cost of Debt After Tax Cost of Debt WACC:

2020E 12/31/2020 0.04

2021E 12/31/2021 0.96

2022E 12/31/2022 1.96

2023E 12/31/2023 2.96

2024E 12/31/2024 3.96

2025E 12/31/2025 4.96

$2,761,647

$3,347,700

$3,950,116

$4,656,670

$5,484,870

$6,275,629

20.00% $2,209,317.30 $103,117.72 ($110,600.28) $221,281.58 $2,423,116.31 $17,843,970.57 $2,416,910.44

20.00% $2,678,160.19 $105,940.74 ($126,543.37) ($3,257.41) $2,654,300.15 $2,490,841.51

20.00% $3,160,093.10 $110,621.90 ($144,785.44) $251,104.02 $3,377,033.58 $2,966,834.71

5.00% $365.0 $400.1 $445.2 $505.4 $589.6 $716.0 $926.7

5.50% $326.0 $352.9 $386.5 $429.8 $487.5 $568.2 $689.4

DCF Sensitivity analysis WACC 6.00% 6.50% 7.00% $294.4 $268.5 $246.8 $315.6 $285.3 $260.5 $341.4 $305.6 $276.6 $373.6 $330.3 $296.1 $415.1 $361.3 $319.8 $470.4 $401.0 $349.5 $547.8 $454.1 $387.6

4.00% $1,347.9

$891.3

$663.9

$320.11 0.50% 1% 1.50% Perpetuity 2% growth 2.50% 3.00% 4%

January 22, 2021

2.25% 1.15% 20.00% 6.85% 0.812 6.72% 5.11% 94.89% $ 484,605 $ 8,994,867 10.86% 8.69% 6.82%

$528.3

$438.5

20.00% $3,725,336.28 $117,254.28 ($165,658.03) ($125,647.45) $3,551,285.08 $2,920,824.20

20.00% $4,387,895.72 $125,965.46 ($189,540.44) $134,133.13 $4,458,453.87 $3,432,938.87

20.00% $5,020,503.46 $136,919.94 ($216,866.70) $75,231.39 $5,015,788.09 $3,615,620.84

7.50% $228.4 $239.7 $252.8 $268.3 $286.9 $309.7 $338.2

8.00% $212.7 $222.0 $232.8 $245.4 $260.3 $278.2 $300.0

8.50% $199.1 $207.0 $215.9 $226.3 $238.4 $252.7 $269.8

9.00% $187.3 $193.9 $201.5 $210.1 $220.1 $231.7 $245.4

9.50% $176.9 $182.6 $189.0 $196.2 $204.5 $214.1 $225.2

$374.7

$327.3

$290.8

$261.8

$238.4

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Valuation EV/EBITDA Multiple. We also conducted valuations using earnings and EBITDA multiples that were derived from the forecasted Bloomberg multiples of their closest peers. Doing a comparative analysis on Vertex Pharmaceutical competitors and examining the trend in their peer-forwards multiples, we noticed a downward trend from 2020E-2022E. Taking this into account, we forecasted a declining P/E and EV/EBITDA multiple which was more in line with industry trends. In our base case scenario for 2022, assuming an EV/EBITDA multiple of 15.00x and an expected EBITDA of $4.8B in 2022 we get an implied share price of $335.05 indicating 40% upside.

EV/EBITDA

2020E

2021E

2022E

Adj. EBITDA EV/EBITDA

Bear Base Bull Bear Base Bull Bear Base Bull $3,234,612 $3,594,013 $3,953,414 $3,683,926 $4,093,251 $4,502,576 $4,331,324 $4,812,582 $5,293,841 15.40x 17.11x 18.82x 14.40x 16.00x 17.60x 13.50x 15.00x 16.50x

EV (-) Debt (+) cash Market Cap

$49,809,783 $61,493,559 $74,407,206 $53,048,533 $65,492,016 $79,245,340 $58,472,875 $72,188,735 $87,348,369 $538,576 $538,576 $538,576 $454,312 $454,312 $454,312 $364,872 $364,872 $364,872 $6,461,081 $6,461,081 $6,461,081 $9,973,402 $9,973,402 $9,973,402 $14,193,834 $14,193,834 $14,193,834 $55,732,287 $67,416,063 $80,329,711 $62,567,623 $75,011,107 $88,764,430 $72,301,837 $86,017,697 $101,177,331

Shares outstanding

256728

256728

256728

256728

256728

256728

256728

256728

256728

Implied Stock Price Current Price

$217.09 $238.64 -9%

$262.60 $238.64 10%

$312.90 $238.64 31%

$243.71 $238.64 2%

$292.18 $238.64 22%

$345.75 $238.64 45%

$281.63 $238.64 18%

$335.05 $238.64 40%

$394.10 $238.64 65%

Upside

EV/EBITDA Sensitivity analysis EBITDA $335.05 $3,000,000 $3,250,000 $3,500,000 $3,750,000 $4,000,000 $4,250,000 $4,500,000 $4,750,000 $5,000,000 $5,250,000 $170.7 $180.5 $190.2 $199.9 $209.7 $219.4 $229.1 $238.9 $248.6 $258.4 10x $194.1 $205.8 $217.5 $229.1 $240.8 $252.5 $264.2 $275.9 $287.6 $299.3 12x $217.5 $231.1 $244.7 $258.4 $272.0 $285.6 $299.3 $312.9 $326.5 $340.2 14x $240.8 $256.4 $272.0 $287.6 $303.2 $318.7 $334.3 $349.9 $365.5 $381.1 16x EV/EBIT $264.2 $281.7 $299.3 $316.8 $334.3 $351.8 $369.4 $386.9 $404.4 $422.0 18x DA 20x $287.6 $307.1 $326.5 $346.0 $365.5 $385.0 $404.4 $423.9 $443.4 $462.9 22x 24x 26x 28x

January 22, 2021

$310.9 $334.3 $357.7 $381.1

$332.4 $357.7 $383.0 $408.3

$353.8 $381.1 $408.3 $435.6

$375.2 $404.4 $433.6 $462.9

$396.6 $427.8 $459.0 $490.1

$418.1 $451.2 $484.3 $517.4

USF Student Managed Investment Fund

$439.5 $474.5 $509.6 $544.7

$460.9 $497.9 $534.9 $571.9

$482.3 $521.3 $560.2 $599.2

$503.8 $544.7 $585.6 $626.5

14

Risks Failure to diversify revenue One of the biggest concerns and risks for Vertex Pharmaceuticals is that they are heavily reliant on their Cystic Fibrosis franchise. Having such a focused revenue makes Vertex even more exposed to other external risks that could damage the Cystic Fibrosis market size. Vertex Pharmaceuticals has recognized this risk and has been working on multiple pipeline drugs in the rare-disease market that we previously mentioned.

Competition in the Cystic Fibrosis market Vertex Pharmaceuticals is currently the only company that produces a drug to treat Cystic Fibrosis making the market untapped and very attractive.

This has caused several other firms like AbbVie, Eloxx Pharmaceuticals, Translate Bio and Proteostasis therapeutics to develop medicines that treat Cystic Fibrosis. If one of these pipeline drugs from Vertex’s competitors reaches the market, the additional competition would cut into their revenue.

Regulatory Risks Before making their products public, Vertex Pharmaceuticals must go through a lengthy regulatory approval process that can often be prolonged due to unforeseen reasons. Vertex Pharmaceutical in the past has faced some regulatory issues with the approval of their drugs largely with their expansion into newer markets like Europe. These risks seem to have been slightly mitigated as there has been approval for TRIKAFTA in 2020 which was sooner than management expected. However, there is still more needed regulatory approval for further label expansion for many of their drugs in their CF franchise. Any issues with regulatory approval or halts in approval could prolong the uptake of TRIKAFTA and other drugs in Europe.

Development Risks Being a Biotech company that focuses on manufacturing drugs for severe rare-diseases, there is a lot of uncertainty in the development of these new drugs. Additionally, Vertex pharmaceuticals is working on diseases that have limited treatments, so they are in undiscovered territory. At any point in clinical trial, there could be unfavorable data or pipelines that just don’t work out. We have already seen this recently with the discontinuation of the development of VX-814 due to complication during the trial. To mitigate this risk, Vertex has adopted a R&D strategy which mandates that they work on multiple similar molecules into development simultaneously as to not completely lose hope when one fails. An example of this is their development of VX-864 which largely targets the same issues.

Pricing Pressures.

Being the only firm producing Cystic Fibrosis treatments as well as their Orphan drug status on many of their drugs, Vertex has put very large price tags on the mainstream drug candidates which could face some pressure and erode some returns.

January 22, 2021

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Management Reshma Kewalramani, M.D., FASN, is the Chief Executive Officer and President at Vertex. Dr. Kewalramani has dedicated her career to improving the lives of patients, including the last 15+ years through the development of new medicines. She joined Vertex in 2017 and was previously the Chief Medical Officer and Executive Vice President of Global Medicines Development and Medical Affairs. During that time, Vertex made remarkable progress to bring new medicines to more cystic fibrosis (CF) patients around the world, including the approval of SYMDEKO/SYMKEVI and the rapid approval of TRIKAFTA to potentially treat up to 90% of all CF patients. Under Dr. Kewalramani’s leadership, Vertex also advanced several programs outside of CF into the clinic, including alpha-1 antitrypsin deficiency, APOL1mediated kidney diseases, sickle cell disease and betathalassemia.

Charles (Charlie) Wagner joined Vertex in 2019 as Executive Vice President and Chief Financial Officer (CFO). In this role, Mr. Wagner oversees the finance, internal audit, investor relations, and global security and facilities functions. Mr. Wagner has deep corporate finance and health care experience, including more than a decade in public and private company CFO roles. Prior to joining Vertex, Mr. Wagner was Executive Vice President, Finance and CFO at Ortho Clinical Diagnostics, Inc. – a Carlyle Group portfolio company. In this role, he had leadership responsibilities for all aspects of finance, accounting, tax, treasury, global information systems, lender relations, and acquisitions and divestitures, as well as shared responsibility for several enterprise-wide projects.

David Altshuler, M.D, Ph.D., is Executive Vice President, Global Research and Chief Scientific Officer at Vertex Pharmaceuticals. In this role, Dr. Altshuler leads Vertex research, preclinical and pharmaceutical sciences aimed at discovering transformative medicines for the treatment of serious diseases. He also oversees Vertex corporate functions for innovation, data strategy and solutions, and STEAM Education, and is Vice-Chair of the Vertex Foundation. Since Dr. Altshuler joined Vertex as Chief Scientific Officer in 2015, the company has made significant progress to bring new medicines to patients living with cystic fibrosis and other serious diseases, including the approval of ORKAMBI® and SYMDEKO/SYMKEVI® ,and the discovery, development and launch of TRIKAFTA®.

January 22, 2021

USF Student Managed Investment Fund

16

Analyst Team Robert Camejo is a first generation American, born and raised in Tampa, and is set to graduate in May 2022. He is a junior pursuing a dual-degree in finance, with a concentration in asset management and quantitative economics and Econometrics, accompanied by a minor in entrepreneurship. Through his business classes, he has maintained a 3.95 GPA. In his first year at USF, he joined the professional business fraternity, Delta Sigma Pi, which has allowed him to improve his professional and interpersonal skills. Through his networking within the fraternity, he was able to secure a wealth management internship at Merrill Lynch in St. Petersburg for the 2019-20 school year.

Rafael Nobre is a senior currently pursuing a double major in finance and business analytics and information systems. He was born in Brazil and moved to the United States after having developed a passion for investments, inspired by his father, who is a real estate investor and an entrepreneur. Nobre previously served as a calculus, financial accounting and business analytics tutor, which allowed him to help other students to succeed. This past summer, he interned in Citi in its Equity Research department, a career he would like to pursue after graduation. Nobre hopes the challenge in the ASA program will provide him with some real-world experience in security analysis and stock valuation. Upon graduation, he plans to pursue his Chartered Financial Analyst designation.

Aravind Thota is from Tampa and he is pursuing a bachelor’s degree in finance accompanied by a minor in economics. He is a brother of the professional business fraternity, Delta Sigma Pi, Theta Phi Chapter, which has provided him with a platform to seek valuable experiences in various business fields, specifically in finance. Thota is currently an investment banking Intern at LCG Advisors in Tampa. He previously held positions as a market research analyst intern at Crosstree Capital Partners and a financial and data analyst intern at Tampa Electric Company. His exposure to different positions in the business sectors has allowed him to discover his true passion for investment management and banking. He hopes to develop his fundamental and technical financial skills through the Applied Securities Analysis program/USF Student Managed Investment Fund.

Mark Carlos Zevallos is a first-generation American pursuing a degree in finance with a concentration in investment management, though he came into USF as a pre-med major. He volunteered at the Yuengling Center during Hurricane Irma, ventured on a medical service trip to the Dominican Republic, and shadowed physicians in the Florence region of Italy. He hopes to take the knowledge from Applied Securities Analysis to be a better investor.

January 22, 2021

USF Student Managed Investment Fund

17

Appendix EBIT Depreciation

Net income

EBT Income taxes

Interest income Interest expense Other (expense) income

Costs and expenses: Cost of sales R&D SG&A Changes in fair value contingent consideration Restructuring expenses Intangible asset impairment change Total operating expenses Operating Income

Revenues Product revenues Collaborative and royalty revenues Total Revenues

Year Fiscal Year End

(-411,251) $231,025

(-473,594) $62,343

(-588,181)

(-557,800) $30,381

(-84,206) (-6,715)

$124,512 $995,922 $376,575 $2,206 $1,499,215 (-466,879)

$1,000,324 $32,012 $1,032,336

2015A 1/2/2016

$313,169

$75,464 $237,705

$14,066 $61,398

(-84,031)

(-67,366) $16,665

(-81,432) $4,130

$210,460 $1,047,690 $432,829 $1,262 $1,692,241 $9,936

$1,683,632 $18,545 $1,702,177

2016A 12/31/2016

$1.06 $1.04

$396,494

$103,258 $293,236

$41,861 $61,397

$91,365

$275,119 $1,324,625 $496,079 $14,246 $255,340 $2,365,409 $123,243

$2,165,480 $323,172 $2,488,652

2017A 12/30/2017

$8.24 $8.09

$1,031,827

$706,780 $325,047

$634,360 $72,420

$2,087,103

(-15,689) $600,241 (-107,324) (-1,486,862)

$11,748 (-69,298) (-81,382)

254,292 259,185

$38,352 (-72,741) (-790)

$409,539 $1,414,476 $557,616 (-184) $29,000 $2,412,447 $635,150

$3,038,325 $9,272 $3,047,597

2018A 12/29/2018

256,728 260,673

$4.58 $4.51

$1,857,179

$1,496,690 $360,489

$1,389,743 $106,947

$1,176,810

$1,394,919 $218,109

$63,678 (-58,502) $192,177

$547,758 $1,754,540 $658,498 $4,459 $2,965,255 $1,197,566

$4,160,726 $2,095 $4,162,821

2019A 12/28/2019

258,237 262,182

$9.98 $9.83

$3,594,013

$3,004,385 $589,627

$2,901,268 $103,118

$2,569,996

$2,855,341 $285,345

$7,161 (-53,087) $139,621

$765,841 $1,817,552 $744,456 $12,600 $3,340,448 $2,761,647

$6,100,000 $2,095 $6,102,095

2020E 12/28/2020

259,753 263,698

$11.34 $11.17

$4,093,251

$3,453,641 $639,610

$3,347,700 $105,941

$2,936,012

$3,315,738 $379,726

$10,674 (-42,636) -

$876,237 $1,954,880 $802,897 $3,634,015 $3,347,700

$6,979,620 $2,095 $6,981,715

2021E 12/28/2021

261,496 265,441

$12.62 $12.43

$4,812,582

$4,060,738 $751,844

$3,950,116 $110,622

$3,288,740

$3,932,552 $643,812

$14,895 (-32,459) -

$1,002,553 $2,156,808 $878,699 $4,038,060 $3,950,116

$7,986,081 $2,095 $7,988,176

2022E 12/28/2022

263,283 267,228

$14.59 $14.37

$5,622,697

$4,773,925 $848,773

$4,656,670 $117,254

$3,827,495

$4,653,527 $826,031

$19,353 (-22,497) -

$1,147,083 $2,376,340 $959,676 $4,483,099 $4,656,670

$15.81 $15.58

$5,610,835 $6,412,549 $977,693 $1,114,898

$5,484,870 $6,275,629 $125,965 $136,920

$4,177,889 $4,783,156

$5,497,223 $6,293,626 $1,319,333 $1,510,470

$1,312,454 $2,614,355 $1,045,742 $4,972,552 $5,484,870

$17.96 $17.70

$6,588,528 $7,527,447

$24,239 (-11,886) -

267,338 271,283

$29,883 (-11,886)

$1,501,672 $2,991,270 $1,196,508 $5,689,451 $6,275,629

$9,137,674 $10,455,327 $11,962,985 $2,095 $2,095 $2,095 $9,139,769 $10,457,422 $11,965,080

2023E 12/28/2023

265,273 269,218

In thousands

EBITDA Stock based compensation

(-180,226)

-$0.46 -$0.46

248,858 253,225

2024E 2025E 12/28/2024 12/28/2025

Adjusted EBITDA

-$2.31 -$2.31

244,685 244,685

Earnings per share: Basic Diluted

241,312 241,312

Weighted-average shares outstanding Basic Diluted

18

USF Student Managed Investment Fund

January 22, 2021

Appendix

2017A 12/30/2017

$2,650,134 $518,108 $409,688 $124,360 $140,819 $3,843,109

2018A 12/29/2019

2019A 12/28/2019

$209,049 $2,266,656 $223,974 $2,699,679

$192,523 $189,100 $130,752 $3,377,499 $3,377,499

$216,786 $2,408,005 $240,332 $2,865,124

$101,721 $189,100 $119,264 $3,745,559 $3,745,559

$265,901 $2,808,997 $260,575 $3,335,474

$101,721 $189,101 $107,776 $4,189,051 $4,189,051

$314,898 $3,194,662 $280,893 $3,790,453

$6,461,081 $9,973,402 $14,193,834 $18,651,609 $23,536,948 $29,180,287 $699,671 $700,371 $701,071 $701,772 $702,474 $703,176 $837,440 $958,158 $1,096,282 $1,254,325 $1,435,157 $1,642,065 $256,246 $286,336 $328,162 $378,040 $430,342 $492,941 $297,470 $349,224 $394,490 $454,265 $518,094 $593,739 $8,551,907 $12,267,490 $16,713,840 $21,440,012 $26,623,014 $32,612,208

2020E 12/28/2020

$202,926 $1,771,824 $219,769 $2,194,519

$277,780 $189,100 $143,203 $3,309,762 $3,309,762

$745,080 $752,563 $773,165 $807,329 $855,732 $919,307 $999,254 $1,002,158 $1,002,158 $1,002,158 $1,002,158 $1,002,158 $1,002,158 $1,002,158 $400,000 $400,000 $400,000 $400,000 $400,000 $400,000 $400,000 $1,190,815 $890,815 $590,815 $290,815 $157,583 $167,739 $191,165 $206,693 $216,937 $244,002 $266,408 $8,318,465 $11,765,182 $15,224,793 $19,420,835 $23,914,840 $29,188,482 $35,280,028

$3,109,322 $698,972 $633,518 $167,502 $213,515 $4,822,829

$128,424 $1,637,232 $192,527 $1,958,182

$364,872 $189,100 $155,813 $2,904,304 $2,904,304

In thousands

2016A 12/31/2016

$1,665,412 $423,254 $281,343 $111,830 $167,124 $2,648,963 $812,005 $50,384 $1,499,672 $40,728 $6,245,898

$87,610 $1,116,912 $130,305 $1,334,827

$454,312 $189,100 $168,720 $2,770,314 $2,770,314

2025E 12/28/2025

2015A 1/2/2016

$1,183,945 $250,612 $47,762 $201,083 $77,604 $70,534 $1,831,540 $789,437 $50,384 $29,000 $834 $27,396 $3,546,014

$110,987 $958,899 $40,589 $1,120,292

$538,576 $176,500 $183,318 $2,233,221 $2,233,221

2024E 12/28/2024

$714,768 $327,694 $78,910 $173,838 $57,207 $54,736 $1,407,153 $698,362 $50,834 $284,340 $11,833 $2,896,787

$73,994 $443,961 $34,373 $807,260

$581,550 $82,573 $108,853 $1,810,695 $2,474,818

2023E 12/28/2023

$697,715 $50,834 $284,340 $6,912 $2,498,587

$61,451 $315,249 $10,943 $792,537

$78,431 $27,774 $1,503,708 $1,503,708

2022E 12/28/2022

Year Fiscal Year End ASSETS Current Assets: Cash and cash equivalents Marketable securities Restricted cash and cash equivalents (VIE) Accounts Receiveable, net Inventories Prepaid expenses and other current assets Total current assets

$74,942 $305,820 $14,374 $506,167

$102,122 $1,558,596 $1,558,596

2021E 12/28/2021

Property and equipment, net Goodwill Intangible assets Deferred tax assets Other Assets Total Assets

$31,778 $1,404,959 $1,404,959

$11,362,640 (-1,973) $19,730,310 $31,090,978 $31,090,978 $35,280,029

Long-term finance lease liabilities Long-term contingent consideration Advance from collaborator, excluding current portion Other long-term liabilities Total Liabilities

LIABILITIES AND EQUITY Current Liabilities Accounts payable Accrued expenses Other current liabilities Total current liabilities

$6,199,927 $6,509,245 $7,159,874 $7,424,022 $7,940,195 $8,279,822 $8,669,433 $9,171,277 $9,770,049 $10,497,742 $1,824 $21,173 (-11,572) $659 (-1,973) (-1,973) (-1,973) (-1,973) (-1,973) (-1,973) (-5,621,784) (-5,373,836) (-5,119,723) (-2,989,478) (-1,852,978) $717,018 $3,653,030 $6,941,769 $10,769,265 $14,947,154 $939,967 $1,156,582 $2,028,579 $4,435,203 $6,085,244 $8,994,867 $12,320,489 $16,111,073 $20,537,341 $25,442,923 $153,661 $181,609 $13,727 $1,093,628 $1,338,191 $2,042,306 $4,435,203 $6,085,244 $8,994,867 $12,320,489 $16,111,073 $20,537,341 $25,442,923 $2,498,587 $2,896,787 $3,546,014 $6,245,898 $8,318,465 $11,765,182 $15,224,793 $19,420,835 $23,914,840 $29,188,482

Shareholders' equity Preferred Stock (1K shares authorized) APIC and Common Stock Accumulated other comprehensive (loss) income Accumulated (deficit) income Total Vertex shareholder's equity Noncontrolling interest Total Shareholders' equity Total liabilities and shareholders' equity

19

USF Student Managed Investment Fund

January 22, 2021

Appendix

In thousands

Year Fiscal Year End

$91,365 $2,087,103 $1,176,810 $2,569,996 $2,936,012

2015A 2016A 2017A 2018A 2019A 2020E 2021E 1/2/2016 12/31/2016 12/30/2017 12/29/2018 12/28/2019 12/28/2020 12/28/2021

$3,288,740

2022E 12/28/2022

$848,773 $117,254 $290,815

$3,827,495

2023E 12/28/2023

$977,693 $125,965 -

$4,177,889

2024E 12/28/2024

$1,114,898 $136,920

$4,783,156

2025E 12/28/2025

$844,942 $1,270,286 $1,569,330 $3,796,623 $3,978,305

-

(-165,658)

-

(-189,540)

-

(-216,867)

-

-

(-84,031)

$751,844 $110,622 $300,000

(-588,181)

$639,610 $105,941 $300,000

-

(-144,785)

(-334,264)

(-84,264)

(-250,000)

(-110,600)

(-339,440)

(-89,440)

(-250,000)

(-126,543)

-

(-337,092)

(-87,092)

(-250,000)

(-144,785)

-

(-335,257)

(-85,257)

(-250,000)

(-165,658)

-

(-340,802)

(-90,802)

(-250,000)

(-189,540)

-

(-250,000)

-

(-250,000)

(-216,867)

-

(-110,600)

(-126,543)

$300,000

$589,627 $103,118

Cash flows from operating activities: Net income

$12,600

-

$360,489 $106,947 $167,387 (-197,597) $4,459 $16,942

-

$293,236 $325,047 $61,397 $72,420 $15,292 (-120,513) (-1,512,325) (-2,558) $1,951 $255,340 $29,000 $160,000 $76,644 $1,077 $14,439 $32,502

(-225,587) (-64,047) $35,440 (-22,785) $172,881 $37,997

-

(-108,152) (-31,965) $16,684 $36,554 $302,755 $22,144

-

$237,705 $61,398 $16,961 $6,140 (-71,759) (-47,484) (-111,063) $8,753 $255,178 (-5,987) (-5,913) (-20,861)

-

$231,025 $62,343 $3,283 $2,516 $9,532 (-39,095) (-16,450) (-2,631) (-11,745) $88,649 (-7,426) (-13,372) -

(-206,908) (-62,599) (-98,752) $48,997 $385,665 $8,830 $236,103

- (-1,154,212) (-431,918) (-537,196) $431,576 $475,924 $94,936 (-95,524) (-75,451) (-83,471) (-39,319) (-15,000) (-7,896) $75 -

$6,110,205

(-110,098) (-23,146) (-4,009) (-1,709) $102,746 (-30,492) (-19,242) -

(-202,158) (-1,235,318)

(-180,832) (-52,301) (-91,596) $49,115 $400,992 $8,755

(-365,432)

(-532,581) $369,214 (-99,421) (-61,602) (-160,000) $436 $1,061

$343,244 (-192,015) (-39,185) $12,500 $10,046 (-5,866) (-1,951)

$5,415,681

Adjustments to reconcile net income to net cash provided by operating activities Stock based compensation expense Depreciation expense Write-downs of inventories to net realizable value Deferred income taxes Gains on equity securities Increase in fair value contingent consideration Impairment of property and equipment Intangible asset impairment charges Acquired in-process research and development Deconsolidation of VIE Other non-cash items, net Changes in operating assets and liabilities Accounts Receivable, net Inventories Prepaid expenses and other assets Accounts payable Accrued expenses Accrued restructuring expense Deferred revenues Other Liabilities

(-616,625) $757,562 (-56,563) (-13,075) (-20,000) $31,148 $22,022 -

(-483,329)

$289,293 (-350,043) $7,500 $20,840 (-5,027) (-33,388) (-394)

$126,773

(-158,042) (-49,878) (-70,720) $7,737 $141,349 $3,907

Net cash provided by operating activities

(-633,041) $1,067,443 (-45,302) (-30,000) $11,685 (-21,929) (-80,000) -

$104,469

$344,840 $12,500 $34,666 (-4,266) (-19,336) (-300,000) -

(-71,219)

$4,958,690

Cash flows from investing activities: Payments to acquire business, net of cash acquired Purchases of available-for-sale debt securities Maturities of available-for-sale-debt securites Sale of equity securities Expenditures for property and equipment Investment in equity securities Investment in note receivable Decrease in restricted cash due to deconsolidaton of VIE Purchase of in-process research and development Increase (decrease) in restricted cash and cash equivalents and other assets Payment of acquisition of variable interest entity Other investing activities

$268,856

$68,230 $75,000 $11,208 (-18,029) -

$68,404

(-138,125) (-41,827) (-61,495) $6,123 $494,832 (-8,405)

Net cash used in investing activities

$185,592 $23,662 (-20,335) -

$133,271

$4,702,309

Cash flows from financing activities: Issuance of common stock under benefit plans Repurchases of common stock Payments on finance leases Advance from collaborator Proceeds related to capital lease and construction financing lease obligations Repayments of advanced funding Payments on Capital lease and construction financing lease obligations Payments on revolving credit facility Other financing activities

$188,919

(-120,717) (-30,089) (-75,880) $74,503 $134,592 $14,335

Net cash provided by (used in) financing activities

(-2,834) (-4,666) $5,802 (-6,182) $1,643 $89,509 $469,177 $435,819 $990,727 $462,428 $3,351,759 $3,512,322 $4,220,432 $4,457,775 $4,885,339 $5,643,339 $625,259 $714,768 $1,183,945 $1,667,526 $2,658,253 $3,109,322 $6,461,081 $9,973,402 $14,193,834 $18,651,609 $23,536,948 $714,768 $1,183,945 $1,667,526 $2,658,253 $3,109,322 $6,461,081 $9,973,402 $14,193,834 $18,651,609 $23,536,948 $29,180,287

(-203,922) (-88,744) (-94,809) $40,814 $520,320 $47,624

Effect of changes in exchange rates on cash Net increase in cash, cash equivalents nad restricted cash Cash, cash equivalents and restricted cash beginning of period cash, cash equivalents and restricted cash end of period

20

USF Student Managed Investment Fund

January 22, 2021

Appendix

$292.12 20x 22x 24x 26x 28x 30x 32x 34x 36x 38x 40x 42x 44x

P/E

$7.00 $140.0 $154.0 $168.0 $182.0 $196.0 $210.0 $224.0 $238.0 $252.0 $266.0 $280.0 $294.0 $308.0

P/E P/E Adj. EPS Share Price

$7.50 $150.0 $165.0 $180.0 $195.0 $210.0 $225.0 $240.0 $255.0 $270.0 $285.0 $300.0 $315.0 $330.0

$8.00 $160.0 $176.0 $192.0 $208.0 $224.0 $240.0 $256.0 $272.0 $288.0 $304.0 $320.0 $336.0 $352.0

P/E Sensitvity Analysis EPS $8.50 $9.00 $9.50 $10.00 $170.0 $180.0 $190.0 $200.0 $187.0 $198.0 $209.0 $220.0 $204.0 $216.0 $228.0 $240.0 $221.0 $234.0 $247.0 $260.0 $238.0 $252.0 $266.0 $280.0 $255.0 $270.0 $285.0 $300.0 $272.0 $288.0 $304.0 $320.0 $289.0 $306.0 $323.0 $340.0 $306.0 $324.0 $342.0 $360.0 $323.0 $342.0 $361.0 $380.0 $340.0 $360.0 $380.0 $400.0 $357.0 $378.0 $399.0 $420.0 $374.0 $396.0 $418.0 $440.0

2020E Bear 22.09 $8.85

$10.50 $210.0 $231.0 $252.0 $273.0 $294.0 $315.0 $336.0 $357.0 $378.0 $399.0 $420.0 $441.0 $462.0

$11.00 $220.0 $242.0 $264.0 $286.0 $308.0 $330.0 $352.0 $374.0 $396.0 $418.0 $440.0 $462.0 $484.0

$11.50 $230.0 $253.0 $276.0 $299.0 $322.0 $345.0 $368.0 $391.0 $414.0 $437.0 $460.0 $483.0 $506.0

2021E

Base 24.54 $9.83

Bull 26.99 $10.81

Bear 21.60 $10.05

Base 24.00 $11.17

$12.00 $240.0 $264.0 $288.0 $312.0 $336.0 $360.0 $384.0 $408.0 $432.0 $456.0 $480.0 $504.0 $528.0

$12.50 $250.0 $275.0 $300.0 $325.0 $350.0 $375.0 $400.0 $425.0 $450.0 $475.0 $500.0 $525.0 $550.0

$13.00 $260.0 $286.0 $312.0 $338.0 $364.0 $390.0 $416.0 $442.0 $468.0 $494.0 $520.0 $546.0 $572.0

2022E Bull 26.40 $12.28

Bear 21.15 $11.19

Base 23.50 $12.43

Bull 25.85 $13.67

$195.41 $241.24 $291.90 $217.07 $267.99 $324.26 $236.62 $292.12 $353.46 Bull Case

P/E EPS Target Price Potential Upside CAGR

2020E 26.99x $10.81 $291.90 22% 7%

P/E EPS Target Price Potential Upside CAGR

2020E 24.54x $9.83 $241.24 1% 7%

P/E EPS Target Price Potential Upside CAGR

2020E 22.09x $8.85 $195.41 -18% 7%

2021E 26.40x $12.28 $324.26 36%

2022E 25.85x $13.67 $353.46 48%

Base Case 2021E 24.00x $11.17 $267.99 12%

2022E 23.50x $12.43 $292.12 22%

2021E 21.60x $10.05 $217.07 -9%

2022E 21.15x $11.19 $236.62 -1%

Basic EPS Assumptions 2020E 2021E Bull EPS $10.81 $12.28 Bull Price Target $291.90 $324.26 Base EPS $9.83 $11.17 Base Price Target $241.24 $267.99 Bear EPS $8.85 $10.05 Bear Price Target $195.41 $217.07

2022E $13.67 $353.46 $12.43 $292.12 $11.19 $236.62

Bear Case

January 22, 2021

Current Price

USF Student Managed Investment Fund

238.64

21

Appendix

In thousands

Year Fiscal Year End Valuation Price/Sales Price/Earnings Price/FCF EV/EBIT EV/EBITDA EV/Sales Per Share Data Sales Per Share Operating Income Per Share FCF Per Share EBITDA (Basic) EPS (Basic) Profitability Gross Margin Operating Margin Profit Margin EBITDA Margin NOPAT Margin FCF Margin DuPont Analysis Profit Margin Asset Turnover Equity Multiplier ROE ROA Liquidity Current Ratio Quick Ratio Cash Ratio CFO/Current Liabilities Payables Turnover Days Payable Inventory Turnover Days in Inventory Assets Turnover Debt Debt Debt/Equity Debt/Assets Interest Coverage Debt/EBITDA Debt/EBIT EBITDA/Interest Expense EV Market Stock Price Share Outstanding Market Cap Equity Value Plus: Net Debt EV 2.78 2.67 2.06 -0.72

-53.89% -50.87% 41.32%

-8.53% -45.23% -53.89% -39.84% -48.17% 8.67%

$4.28 ($1.96) $0.37 ($1.70) ($2.31)

29.41x -54.47x 339.23x -64.11x -73.83x 29.41x

2015A 1/2/2016

2.31 2.21 1.81 0.30 1.83 199.91 1.85 198 0.38

-6.58% 38.27% 228.47% -8.37% 58.76%

26.09% 0.58% -6.58% 4.43% -0.40% 27.56%

$6.96 $0.06 $1.92 $0.31 ($0.46)

10.59x -160.15x 38.42x 1281.53x 238.87x 10.59x

2016A 12/31/2016

3.28 3.14 2.59 1.05 3.11 117.45 2.22 164 0.53

10.59% 52.84% 216.47% 12.90% 70.18%

35.72% 4.95% 10.59% 4.15% 9.26% 17.51%

$10.00 $0.17 $1.75 $0.41 $1.06

14.99x 141.38x 85.57x 890.90x 361.17x 14.99x

2017A 12/30/2017

3.43 3.32 2.83 1.13 2.97 122.71 2.33 157 0.51

68.80% 50.83% 173.63% 47.28% 48.79%

40.15% 20.84% 68.80% 23.19% 69.63% 32.51%

$11.98 $2.45 $3.90 $2.78 $8.24

13.47x 19.59x 41.43x 64.71x 58.08x 13.47x

2018A 12/29/2019

$568,869 0.09 0.07 25.58 0.38 0.41 25.58 $59,299,932

3.61 3.49 2.85 1.18 4.12 88.50 2.81 130 0.42

28.27% 41.85% 140.83% 19.34% 50.04%

44.69% 28.77% 28.27% 35.95% 23.53% 11.11%

$16.21 $5.33 $1.80 $5.83 $4.58

13.63x 48.25x 122.68x 42.67x 39.62x 14.25x

2019A 12/28/2019

$538,576 0.06 0.05 4.88 0.18 0.19 4.88 $65,401,383

4.37 4.24 3.66 1.94 5.07 71.98 2.59 141 0.41

42.12% 41.45% 136.70% 28.57% 51.87%

57.66% 45.26% 42.12% 49.24% 40.58% 54.93%

$23.63 $11.07 $12.98 $11.63 $9.98

9.73x 23.04x 17.72x 22.54x 21.77x 10.72x

2020E 12/28/2020

$454,312 0.04 0.03 (0.93) 0.13 0.14 (0.93) $69,351,763

5.59 5.46 4.86 1.81 4.62 78.96 2.82 129 0.45

42.05% 45.22% 130.80% 23.83% 45.86%

59.45% 47.95% 42.05% 49.47% 42.51% 50.31%

$26.88 $12.70 $13.52 $13.30 $11.34

8.56x 20.29x 17.01x 20.72x 20.08x 9.93x

2021E 12/28/2021

$364,872 0.02 0.02 (1.49) 0.09 0.09 (1.49) $74,060,170

6.19 6.07 5.52 1.74 4.25 85.81 2.85 128 0.40

41.17% 40.30% 123.57% 20.41% 41.13%

60.45% 49.45% 41.17% 50.83% 41.39% 52.83%

$30.55 $14.88 $16.14 $15.53 $12.62

7.53x 18.23x 14.25x 18.75x 18.24x 9.27x

2022E 12/28/2022

$277,780 0.01 0.01 (9.72) 0.06 0.06 (9.72) $79,014,186

7.48 7.35 6.75 1.73 4.71 77.52 2.84 129 0.37

41.88% 36.87% 120.54% 18.64% 38.22%

61.45% 50.95% 41.88% 52.23% 41.91% 48.77%

$34.71 $17.43 $16.93 $18.13 $14.59

6.63x 15.77x 13.58x 16.97x 16.55x 8.65x

2023E 12/28/2023

$192,523 0.01 0.01 (25.58) 0.03 0.04 (25.58) $84,447,909

7.98 7.85 7.27 1.62 4.75 76.80 2.84 129 0.34

39.95% 34.42% 116.45% 16.42% 35.83%

62.45% 52.45% 39.95% 53.65% 39.83% 46.72%

$39.42 $20.37 $18.42 $21.15 $15.81

5.83x 14.55x 12.49x 15.40x 15.05x 8.08x

2024E 12/28/2024

-

$586,821 0.13 0.09 9.72 0.83 0.93 9.72 $41,047,815

$230.00 265,273 $61,012,682 $61,964,200 -$23,435,227 $84,447,909

1.49 1.49 $37,293,860

$230.00 263,283 $60,555,100 $61,964,200 -$18,459,086 $79,014,186

0.93 0.93 $18,025,944

$230.00 261,496 $60,144,115 $61,964,200 -$13,916,054 $74,060,170

(4.88) (4.88) $30,364,289

$230.00 259,753 $59,743,233 $61,964,200 -$9,608,530 $69,351,763

$161.42 254,292 $41,047,815 $42,949,548

$230.00 258,237 $59,394,615 $61,964,200 -$6,006,769 $65,401,383

$149.86 248,858 $37,293,860 $37,948,299

$41,047,815

$73.67 244,685 $18,025,944 $18,025,943

$37,293,860

$125.83 241,312 $30,364,289 $30,195,371

$18,025,944

$220.97 256,728 $56,729,186 $57,074,353 -$2,570,746 $59,299,932 $30,364,289

22

USF Student Managed Investment Fund

January 22, 2021

Appendix

Comps P/E TTM P/B P/S P/FCF Beta (5 Yr) EPS Growth (5 year) Revenue growth TTM vs Prior TTM Rev growth Last Q vs Same Q Prior Gross Margin MRQ Operating Margin MRQ Profit Margin MRQ ROE TTM ROA TTM NI Per employee Debt/Equity MRQ Debt/Capital MRQ Interest Coverage MRQ Current Ratio MRQ

VRTX

ABBV

AMGN

REGN

ALXN

GILD

AMPH

BIIB

22.96x 7.51x 10.32x 20.13x 0.78 0 65.52% 61.95% 87.90% 44.67% 43.39% 40.22% 29.09% $427,931 0 6.3 0 3.72

23.84x 12.60x 4.73x 23.59x 0.84 36.83% 23.68% 52.16% 68.62% 28.45% 18.17% 207.92% 7.06% $2,627 5.70 85.06% 5.17 0.95

19.16x 12.65x 5.54x 20.71x 0.76 13.96% 6.80% 11.96% 76.73 36.74 29.42 67.18% 11.84% $349,310 3.129 75.78% 9.93 2.28

18.23x 5.25x 6.46x 32.72x 0.30 44.00% 24.49% 22.77% 87.98% 37.43% 38.28% 30.60% 21.02% $2,730 0.1954 21.02% 16.51 3.89

33.61x 3.10x 5.93x 13.08x 1.33 26.84% 23.79% 25.78% 90.89% 48.52% 36.39% 8.92% 5.91% $310,380 0.234 18.97% 46.42 3.81

65.81x 4.55x 3.43x 16.65x 0.51 -10.51% 3.50% 17.36% 82.65% 30.42% 5.47% 6.67% 2.06% $104,580 1.679 62.64% 4.29 3.25

139.01x 2.19x 2.63x 67.83x 0.87 2.63% 4.11% 43.76% 2.37% 4.70% 1.67% 1.27% $3,770 0.1112 9.09% 251.21 2.86

8.78x 3.80x 3.11x 6.41x 0.54 20.49% 0.21% 8.18% 86.70% 46.78% 20.78% 41.02% 19.36% $774,803 0.6902 32.56 22.75 2.06

Target Price Model P/E EV/EBITDA DCF Price Target Discount to Market

January 22, 2021

Price Weight $292.12 20% $335.05 20% $320.11 60% $317.50 33.04%

USF Student Managed Investment Fund

23