Is it too late to buy Vertex Pharmaceuticals shares?

Vertex Pharmaceutical (NASDAQ: VRTX) is a biotechnology that focuses on the treatment of rare diseases. Its stock has significantly underperformed over the past year after soaring, falling almost 36% from its July highs.

It is the company that developed the only pharmaceutical treatments for cystic fibrosis (CF), a genetic disease that causes persistent lung infections. Vertex had been very successful in combating the disease and bringing its drugs to market. So what went wrong?

Image source: Getty Images.

What happened?

On June 11, Vertex shares fell 10% in a single day after the company halted development of VX-864, a drug being investigated for the treatment of a liver disease called alpha-deficiency. 1 antitrypsin (AATD). Although VX-864 met the primary endpoint in Phase 2, the researchers did not believe this would translate into any significant clinical benefit. Last October, Vertex dropped another candidate, VX-814, for the same condition. The company reinvested 26% of its sales each quarter in research and development, so the failure was quite disappointing.

That leaves only CTX001, a gene therapy for the treatment of inherited blood disorders, as the primary candidate in the pipeline. However, Vertex is developing transfusion therapy in conjunction with CRISPR Therapeutics (NASDAQ: CRSP). In addition to the profit-sharing agreements, Vertex has already paid the latter $ 900 million to jointly develop the technology. So even after approval, it still has a long way to go to break even.

Can you still count on Vertex?

From an investment standpoint, the biggest problem with Vertex is that it is too dependent on its triple combination cystic fibrosis treatment Trikafta, which was approved in October 2019. In clinical studies, Trikafta has shown 10% to 13% benefit in improving patients. lung function, improved their quality of life and body mass index, and provided respiratory relief. However, these benefits come at a staggering cost of $ 311,000 per year.

There are only about 83,000 patients with cystic fibrosis in developed countries. Almost half of them are already taking Vertex drugs. It’s safe to say that the company has hit a brick wall in terms of generating prescription volume due to its pricing.

In the first quarter of 2021, the company’s revenue grew only 14% year-on-year to $ 1.4 billion. Meanwhile, its net profit grew 16% year-over-year to $ 781 million. Keep in mind that Vertex posted 77% revenue growth and 128% profit growth in the first quarter of 2020 compared to the first quarter of 2019.

This is all problematic, as Vertex stock is currently trading at 8x earnings and 19x earnings. Without the launch of new pipeline candidates, it cannot maintain these valuation levels. I think there is more fighting ahead for his actions. It’s best to avoid biotechnology for now.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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