Is Vertex Stock A Buy?

In light of the stock market recession that took place after the global spread of the novel coronavirus in the early months of 2020, the pursuit of companies that can withstand whatever the future may bring has been challenging, if not elusive.

Labeled “recession-proof” stocks, pharmaceutical companies fall squarely in the target zone — especially seeing how successful COVID-19 vaccine developers Pfizer (PFE), Johnson & Johnson (JNJ), and Moderna (MRNA) stocks have fared over the last year or so.

One company that some investors have turned their attention to is Vertex Pharmaceuticals Incorporated (VRTX).

Founded in 1989 and publicly traded since 1991, Vertex became one of the first biotech firms to strategically implement rational drug design over the more widely known combinatorial chemistry.

Since then, Vertex has been on a consistent up-and-up — rising from under $5 a share in 1991 all the way up to nearly $300 a share in early July 2020.

With the company’s stock on a steady decline since then, is it possible Vertex might turn things around soon? Is Vertex stock a buy?

Vertex Financials

Let’s begin by looking at Vertex Pharmaceuticals’ financials for the company’s most recent quarter.

For the second quarter of 2021, Vertex’s product revenue hit $1.79 billion — an increase of 18% compared to the second quarter of 2020.

A substantial chunk of this $1.79 billion was driven by Vertex’s cystic fibrosis treatments KAFTRIO and TRIKAFTA, which helped the company to increase its net product revenue to $1.26 billion inside the United States — a 4% increase year-over-year — and up to $536 million outside the United States — a 71% increase year-over-year.

Beyond these positives, it’s worth mentioning that Vertex’s GAAP net income decreased compared to the second quarter of 2020 — the company credits this decrease to a a $900 million payment for Vertex‘s collaboration with CRISPR Therapeutics, and argues that the non-GAAP net income still increased compared to Q2 of 2020.

Vertex Forecast: Cystic Fibrosis Treatment A Boon

During the second quarter of 2021, Vertex Pharmaceuticals saw tremendous growth in its cystic fibrosis franchise, with a next-in-class triple combination treatment for the disorder expected to begin its third phase of studies in the second half of the year and several other key milestones in the next several quarters to come.

Should this state-of-the-art treatment continue to secure reimbursement agreements like it has throughout the past couple of quarters, there’s little doubt that Vertex should see further financial success as the trials conclude and the treatment can move further along the pipeline.

With this in mind, analysts predict to see Vertex stock rise from its current price of under $185 a share up to as high as $331 a share over the next 12 months.

Even with the lowest estimates residing somewhere around the $175 mark, the median between the bullish predictions and the bearish ones still land Vertex shares at a forecasted price of $260 a year from now.

Should this median forecast come true, investors who get in now while the stock is experiencing a dip could see an exceptional return on their investment.

A discounted cashflow forecast analysis suggests a VRTX share price appreciation to $260 per share.

New Pharmaceuticals on the Horizon for Vertex

The continued development and testing of this next-in-class triple combination for CF is without question one of the most promising things going for Vertex.

Additionally, Vertex continues to see excellent clinical results with CTX001, an investigational CRISPR/Cas9-based gene-editing therapy that could completely revolutionize the way transfusion-dependent beta thalassemia and severe sickle cell disease are treated in the future.

Should Vertex continue to see the kind of success it has enjoyed lately, then there’s little question that Vertex shares should see a substantial increase as these new pharmaceuticals on the horizon continue to be perfected.

Vertex Moderna Partnership Offers Potential Upside

Years before the novel coronavirus posed a serious threat to the planet, Vertex was working with Moderna on mRNA-based therapeutics.

This collaboration fits squarely underneath Vertex’s genetic therapy division, and has been in the works for the past five years or so now.

During the company’s most recent quarterly earnings call, Vertex CEO and company president Reshma Kewalramani said that the work being done with Moderna is progressing extremely well, and that both companies expect its mRNA-based therapeutics to continue to progress at an even greater pace in the months to come.

As a matter of fact, while no particular time frame is set in stone yet, this Vertex-Moderna collaboration could be headed to clinics sooner rather than later.

Vertex’s Focus on Innovation Internally and Externally

When a company’s stock takes a dip like Vertex’s has, it’s reassuring to hear what exactly the company is doing to turn its numbers around. In Vertex’s case, there is a clear commitment to innovation both internally and externally.

The company has never put a greater focus on its internal innovation, and its acquisitions like Semma and Exonics combined with its partnerships with CRISPR and Moderna show that there’s an equally great focus on external innovation, as well.

Sure, these things require Vertex to spend quite a bit, but the end result very well could be a remarkable return on investment for shareholders who hold onto their Vertex stock.

The Bottom Line: Is Vertex a Buy?

Vertex’s price per share continues to dip despite the company’s progress with cystic fibrosis, diabetes, pain management, sickle cell, and the numerous other pharmaceutical treatments currently in the works.

Should any of these treatments prove unsuccessful in the later stages of clinical trials, investors are likely to be punished as the current share price, at least in theory, has built in an expectation of positive outcomes for management projections.

Looking at the big picture for Vertex Pharmaceuticals, the success of the company’s new pharmaceuticals currently in the works, the rollout of the Moderna collaboration, the profitability of the internal and external investments, and the challenges that may present themselves in the company’s future lead to a quantitative assessment to Buy. The cash flows forecast over time suggest the company is trading at a discount to fair value.

Ultimately, there’s far more good about Vertex stock than bad. Looking at the company’s financial health, the continued increases year-over-year, and the sheer amount of potential for success the company’s investments and treatments have shown lately, it’s not outlandish to say that Vertex is looking quite solid in spite of its dipping price per share.

All in all, Vertex stock seems like a good investment for investors looking to add a pharmaceutical company to their portfolio.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.