Vertex Pharmaceuticals (NASDAQ: VRTX) was a big disappointment for investors in 2021. While the S&P500 index climbed nearly 30%, shares of Vertex are down 5%.
However, investors are much more focused on the direction a stock might take than the direction it has taken in the past. But there are often differing 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 the biotech stock.
Potential game changers on the way
Keith Speights: What I love most about Vertex is that the company doesn’t rest on its laurels. The big drugmaker has a monopoly on the treatment of cystic fibrosis (CF). And he’s using the cash generated from his wildly successful CF franchise to invest in the development of potentially game-changing therapies.
Summit and CRISPR therapeutics hopes to file for regulatory approval for CTX001 by the end of 2022 in the indications of beta-thalassemia and sickle cell disease. CTX001 could be the first CRISPR gene-editing therapy on the market. It not only treats beta thalassemia and sickle cell disease; an infusion of CTX001 has the potential to cure the disease in some patients.
Meanwhile, Vertex has another in-house developed program that could also allow the company to expand beyond CF. On December 1, he announced promising results from a Phase 2 study evaluating VX-147 in the treatment of APOL1-mediated focal segmental glomerulosclerosis (FSGS). The company plans to advance VX-147 to pivotal testing in early 2022 focused on APOL1-mediated kidney disease. More than 100,000 patients in the United States and Europe have 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 a cell therapy that could eliminate the need for immunosuppressants. Vertex might just have a cure for type 1 diabetes on the way.
Be bearish on Vertex if you are bullish on the market
Taylor Carmichael: I think Vertex Pharmaceuticals is a great 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 main threats to 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 revenue loss from Kalydeco may actually be a non-event. And the Trikafta patent is valid until 2037.
As you can see, I’m not particularly bearish on the stock. Pharma companies with a dominant franchise like Vertex have nice profit margins (30%) and the company still qualifies as a growth stock with revenue growth of 29%. What’s not to like?
Well, I think every stock you buy should be compared to an index fund, like the SPDR S&P 500 ETF. And remember: when we talk about “market”, we are talking about world leaders like Apple, Amazon, Microsoft, etc So while Vertex is a fantastic biotech company, I think it will likely lag behind any tech-heavy index fund over the next decade.
So, in isolation, I quite like Vertex. The company has a strong monopoly on cystic fibrosis, and it could surprise on the upside with positive trial results from its painkillers, its diabetes drug, or perhaps its sickle cell drug, all of which are in start of clinical trials. These drugs are years away from any possible Food and Drug Administration approval.
For me, an investment in Vertex is really a macro issue. Where do you think the stock market is going over the next five to ten years? If you’re a bull, an S&P index fund is probably a safer and more effective bet. But if you’re bearish in the stock market, worried about a tech wreck or rising interest rates, then Vertex is the stock for you.
CF patients are going to buy the company’s drugs, even if the economy is collapsing all around us. Nervous Nellies should jump on Vertex – it’s one of the safest stocks out there, in my opinion. But it is likely to lag the market over time.
Is Vertex an action for you?
Individual investors will have to determine for themselves whether the bullish or bearish case for Vertex is stronger. The stock could have several catalysts along the way. But, as Taylor mentioned, it’s possible that other stocks (and even index funds) could outperform it.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.