Vertex Pharmaceuticals stock: bullish against bearish

Vertex pharmaceutical (NASDAQ: VRTX) was a big disappointment for investors in 2021. While the S&P 500 index climbed nearly 30%, shares of Vertex are down 5%.

However, investors are much more focused on the direction a stock might take than it has been in the past. But there are often different views on what the future holds for a given title. This is certainly the case with Vertex. Here are both bullish and bearish arguments for biotech stocks.

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Potential game changers on the way

Keith Speights: What I like most about Vertex is that the company is not resting on its laurels. The large drugmaker has a monopoly on cystic fibrosis (CF) treatment. And he’s using the money generated by his hugely successful CF franchise to invest in developing game-changing therapies.

top and CRISPR Therapeutics hope to file regulatory approvals for CTX001 by the end of 2022 in the beta thalassemia and sickle cell indications. CTX001 could be the first CRISPR gene editing therapy on the market. It doesn’t just treat beta thalassemia and sickle cell disease; an infusion of CTX001 has the potential to cure disease in some patients.

Meanwhile, Vertex has another program developed in-house that could also allow the company to grow beyond CF. On December 1, he announced the promising results of a Phase 2 study evaluating VX-147 for the treatment of the rare kidney disease, focal segmental glomerulosclerosis (FSGS) mediated by APOL1. The company plans to make VX-147 pivotal tests in early 2022 focusing on APOL1-mediated kidney disease. Over 100,000 patients in the United States and Europe suffer from this genetic disease, which represents a larger potential market than cystic fibrosis.

Vertex also reported encouraging data in October for VX-880 in the treatment of type 1 diabetes. The company continues to evaluate VX-880 in phase 1/2 testing. It also plans to file an Investigational New Drug (IND) application in 2022 to begin clinical testing of cell therapy that could eliminate the need for immunosuppressants. Vertex may well have a cure for type 1 diabetes.

Be bearish on Vertex if you are bullish in the market

Taylor Carmichael: I think Vertex Pharmaceuticals is a good stock to own. Along with its drug Kalydeco, it has been the dominant name in cystic fibrosis (CF) for years. The DrugPatentWatch website estimates that it won’t face generic competition until 2029. This is one of the biggest threats for a pharmaceutical company with a dominant drug: When will it fall off the patent cliff? Vertex investors have nearly a decade to plan ahead. And with the arrival of biotech’s next-generation CF molecule, Trikafta, this loss of Kalydeco revenue could in fact be a non-event. And the Trikafta patent is valid until 2037.

As you can see, I’m not particularly bearish on the stock. Pharmaceutical companies with a dominant franchise like Vertex have good profit margins (30%), and the company is still viewed as a growth stock with revenue growth of 29%. What not to like?

Well, I think every stock you buy should be compared to an index fund, such as the SPDR S&P 500 ETF. And remember: when we talk about “market”, we are talking about world champions like Apple, Amazon, Microsoft, etc. So while Vertex is a fantastic biotech company, I think it will likely be underperforming any high tech index fund over the next decade.

VRTX Chart

VRTX data by YCharts.

So in isolation I like Vertex. The company has a strong monopoly in cystic fibrosis and could surprise on the upside with positive results from trials of its pain relievers, diabetes drug or perhaps sickle cell drug, all of which are in trials early clinics. These drugs are several years away from possible Food and Drug Administration approval.

To me, investing in Vertex is really kind of a macro question. Where do you think the stock market will go over the next five to ten years? If you are a bull, an S&P index fund is probably a safer and more successful bet. But if you are bearish in the stock market, worried about a technology wreck or rising interest rates, then Vertex is the action for you.

CF patients will buy the company’s drugs, even as the economy crumbles all around us. Nervous Nellies should jump on Vertex – that’s one of the safest stocks, in my opinion. But it is likely to lag behind the market over time.

Is Vertex an action for you?

Individual investors will have to determine for themselves whether the bullish or bearish arguments for Vertex are stronger. The stock could have several catalysts on the way. But, as Taylor mentioned, there is a possibility that other stocks (and even index funds) will outperform it.

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Teresa Kersten, an employee of LinkedIn, a subsidiary of Microsoft, is a member of the board of directors of The Motley Fool. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of the board of directors of The Motley Fool. Keith Speights owns Amazon, Apple, Microsoft, and Vertex Pharmaceuticals. Taylor Carmichael owns Amazon and Apple. The Motley Fool owns and recommends Amazon, Apple, CRISPR Therapeutics, Microsoft, and Vertex Pharmaceuticals. The Motley Fool recommends the following options: January 2022 long calls at $ 1,920 on Amazon, March 2023 long calls at $ 120 on Apple, January 2022 short calls at $ 1,940 on Amazon, and short calls March 2023 at $ 130 $ on Apple. 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.

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