Tagged: VRTX
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Our Bull and Bear articles describe factors that might help us tell if this investment is going right — or wrong. But remember, we’re long-term thinkers here and it takes a lot more than a potential bear case or an actual one to change our opinion of a stock.
Vertex Pharmaceuticals (NASDAQ: VRTX) has put its biotechnology prowess to work in developing an industry-leading set of treatments for patients suffering from cystic fibrosis (CF). Vertex is building on its success in CF with continued innovation in hopes of fighting other diseases.
5 Potential Bull Cases
- Trikafta delivers sustained blockbuster sales. Currently, the pinnacle of Vertex’s CF success is in its Trikafta combination treatment, which incorporates progressive advances using past treatments like Kalydeco, Orkambi, and Symdeko. Trikafta already produced $5.7 billion in sales in 2021, and Vertex’s ongoing rollout of the treatment internationally should provide an even bigger boost to its top line in 2022. Patent protection on Trikafta will last through 2037, offering a long-term revenue stream for the biotech company.
- Further advances in CF treatments lead to even better future products. Vertex is currently conducting phase 3 clinical trials looking at a triple combination of its existing tezacaftor with its VX-121 and VX-561 candidate drugs. The biotech hopes that this combination could be even more effective in providing benefits to CF patients with particular mutations. Moreover, Vertex is looking at genetic therapies to serve the roughly 10% of CF patients for whom its existing treatments aren’t beneficial, working with Moderna (NASDAQ: MRNA) on a potential mRNA-based solution.
- Vertex’s pipeline outside CF takes off. Vertex has a host of other promising candidates in its pipeline, including its CTX001 treatment for sickle cell disease and beta-thalassemia, its VX-147 APOL1 inhibitor for fighting a form of kidney disease VX-548 candidate for acute pain, and its VX-880 treatment for patients suffering from type 1 diabetes.
- Investors recognize Vertex’s optionality. Vertex stock trades at roughly 8 times its trailing revenue over the past 12 months and about 25 times its trailing earnings. That valuation arguably reflects the success of Vertex’s existing stable of CF treatments but puts little value on its prospects for expanding into treating a broader range of diseases. Success could lead investors to give Vertex a valuation more consistent with those of other biotechs with solid growth prospects.
- Vertex keeps establishing smart strategic collaborations. Existing collaborations with CRISPR Therapeutics (NASDAQ: CRSP), Moderna, and other smaller companies in the industry have helped Vertex remain on the cutting edge of innovation. Future opportunities could help bolster Vertex’s prospects.
3 Potential Bear Cases
- Competition challenges Vertex’s CF dominance. So far, potential competitors haven’t been able to show great success in producing alternative treatments for CF patients. However, AbbVie (NYSE: ABBV) is still devoting considerable resources toward trying to break into the market, with multiple trials looking at various combinations of prospective treatments for the disease. Competition would inevitably force Vertex to cut prices, harming its longer-term profit picture.
- Vertex’s non-CF pipeline doesn’t pan out. Despite promising clinical trial results in several areas, there’s never a guarantee that candidate treatments will gain approval from the U.S. Food and Drug Administration. Setbacks on pipeline treatments could put pressure on Vertex and its stock.
- Future strategic combinations go awry. Vertex has had a good track record of identifying acquisition targets and collaboration partners. But in an environment in which prices for potential acquisitions are on the rise, Vertex has to stay disciplined in evaluating M&A opportunities to make sure it doesn’t squander the hard-earned cash that makes its balance sheet so strong.