Is Vertex Pharmaceuticals a buy?
Last year, Vertex Pharmaceuticals‘ (NASDAQ: VRTX) the share price fell 24%. This is a particularly disappointing performance, especially given the S&P 500 increased by 40% over the same period.
However, there is a silver lining here: Vertex stock now looks incredibly cheap, trading at a price-to-earnings (P / E) ratio of 20, while the average biotech stock is valued at a price-to-earnings (P / E) ratio of 20. P / E of 31. So should you buy Vertex shares on the dip?
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In the first quarter, Vertex increased revenue by 14% to $ 1.723 billion and profit by 16% to $ 781 million.. Almost all of its revenue comes from its sales of drugs to treat cystic fibrosis, including its combination triple therapy, Trikafta. Cystic fibrosis (CF) is an inherited disease that causes chronic lung infections and fluid build-up, and restricts the ability to breathe.
In clinical studies, Trikafta improved patients’ lung function by an average of 10% to 13% compared to placebo. More than 83,000 patients in the United States, Canada, Australia and the EU are eligible for treatment with Trikafta.
The problem is that a therapy course can cost up to $ 311,000 per year. Not all cystic fibrosis patients can afford this, even with a reasonable insurance copayment. About 50% of eligible cystic fibrosis patients in the areas mentioned above are treated with Vertex medicines. This is probably as far as the company is likely to go in terms of market penetration given current prices.
Is the company’s growth sustainable?
Unfortunately, Vertex does not have many treatment areas where it can easily expand beyond the indication for cystic fibrosis. He is currently researching an mRNA gene therapy that could cure the disease in just one treatment. However, this candidate therapy is still in the preclinical phase, and even if it is successful, it would take years to hit the market.
Perhaps the most interesting clinical phase candidate currently in its pipeline is CTX001, a gene therapy designed to treat two rare blood disorders – beta thalassemia and sickle cell anemia. In phase 1/2 clinical trials, CTX001 was shown to be effective in preventing potentially fatal blood vessel blockages in sickle cell anemia, as well as reducing the need for blood transfusions in patients with beta thalassemia.
Note, however, that the company is in partnership with CRISPR Therapeutics (NASDAQ: CRSP) to develop the treatment. Vertex has agreed to pay $ 900 million in upfront payments and may owe an additional $ 200 million in milestone payments to CRISPR Therapeutics if regulatory approval is granted. Vertex will retain 60% of profits if the drug hits the market, up 10% from the companies’ initial 50-50 deal.
What’s the verdict?
Vertex Pharmaceuticals shares seem fairly valued at the moment. Due to its limited pipeline and relative saturation of the cystic fibrosis treatment market, the company is likely to experience revenue growth issues. More cautious biotech investors may wait and see if the company can succeed with its new partner, CRISPR Therapeutics before taking a stake.
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Zhiyuan Sun has no position in any of the listed securities. The Motley Fool owns shares and recommends CRISPR Therapeutics. The Motley Fool recommends Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.