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Is Vertex Pharmaceuticals Stock a Buy?

By Keith Speights – May 24, 2020 at 2:04PM

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This successful biotech has two big things going for it.

The answer is yes. There's no need to build any suspense. Vertex Pharmaceuticals (VRTX -1.04%) is definitely a great stock to buy right now, in my view.

I've owned the biotech stock for a couple of years. I bought more shares recently as Vertex was rebounding from the stock market sell-off caused by the COVID-19 pandemic. And I plan to add to my position in the near future.

Why do I like Vertex so much? There are two main reasons. 

Gloved hand holding a beaker with a $100 bill in it and several $100 bills under it

Image source: Getty Images.

1. A strong moat

Most stocks are greatly impacted by what's going on with the broader economy. They're affected by competitors' moves. They can be hit hard by black swan events like the COVID-19 pandemic. But not Vertex. It has a strong moat that largely insulates it from these factors.

The biotech made nearly $4.2 billion last year. Little to none of that amount is at risk regardless of whether or not there's a global recession or if there's a second wave of coronavirus outbreaks in the fall. That's because Vertex markets the only approved drugs that treat the underlying cause of cystic fibrosis (CF), a rare genetic disease that causes lung infections and can affect the digestive system and other organs.

Vertex enjoys a monopoly in CF. Its drugs will be prescribed by physicians, paid for by insurers and government agencies, and taken by patients in both good and bad economic times. And with the respiratory issues that CF causes, patients aren't likely to skip any treatments with the threat of COVID-19.

But could competition be on the way? Maybe. AbbVie's pipeline includes a couple of experimental CF programs in phase 2 clinical studies. Tiny drugmakers Eloxx Pharmaceuticals and Proteostasis Therapeutics also each have a CF candidate in phase 2 development, while TranslateBio has an early stage CF program.

However, all four of these potential rivals have a long way to go before they could challenge Vertex. And unless their drugs were clearly superior to Vertex's products, I suspect they'd have a hard time knocking Vertex off its perch.

2. Multiple paths for growth

In addition to Vertex's strong moat, the company has multiple paths for growth. Let's start with its three CF drugs approved in the U.S. and in Europe -- Kalydeco, Orkambi, and Symdeko. Vertex secured several key reimbursement deals over the last year that should fuel growth for these drugs.

Even better, Vertex won FDA approval for Trikafta in October 2019, five months earlier than expected. Trikafta is already a huge success in the U.S., raking in $895 million in sales in its first full quarter on the market. Assuming the drug wins European approval (which I think is a pretty safe bet), Vertex should soon have a much greater market opportunity.

I also like that Vertex is leveraging its expertise in CF to target other rare genetic diseases that are similar in many respects to CF. The company's alpha-1 antitrypsin deficiency (AATD) program, which includes a candidate in phase 2 testing and another in phase 1 testing, is a great example of this. Success in AATD could nearly double Vertex's potential market.

The company isn't limiting itself only to rare diseases, though. Vertex's other phase 2 program, VX-150, targets the underlying cause of pain.

Vertex also has a couple of moon shots that could be major catalysts if successful. It's partnering with CRISPR Therapeutics on gene-editing therapy CTX001, which holds the promise of essentially curing rare genetic blood diseases beta-thalassemia and sickle cell disease. Vertex acquired Semma Therapeutics last year to scoop up its promising gene therapy that could cure type 1 diabetes. It hopes to advance this program to clinical testing no later than early 2021.

One issue 

There is one thing about Vertex that I don't like. With Trikafta winning FDA approval and likely to do so in Europe, the company doesn't have any program in late-stage testing. I'd prefer that Vertex have candidates that are closer to possibly making it to market.

Is this a big concern? No. I'm confident that Vertex's CF opportunities will enable the company to generate strong growth for at least the next five years. That should give the company time to advance its AATD and pain programs.

Vertex also sits atop a massive cash stockpile that totaled $4.2 billion as of March 31, 2020. It's possible that the company could use its cash to further bolster its pipeline to improve the chances that it has new products ready to hit the market before its CF franchise sales begin to flatten.

Keith Speights owns shares of AbbVie and Vertex Pharmaceuticals. The Motley Fool owns shares of and recommends CRISPR Therapeutics. The Motley Fool recommends Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Vertex Pharmaceuticals Incorporated Stock Quote
Vertex Pharmaceuticals Incorporated
VRTX
$295.53 (-1.04%) $-3.10
AbbVie Inc. Stock Quote
AbbVie Inc.
ABBV
$138.84 (-1.03%) $-1.45
CRISPR Therapeutics Stock Quote
CRISPR Therapeutics
CRSP
$62.41 (-4.38%) $-2.85
Translate Bio, Inc. Stock Quote
Translate Bio, Inc.
TBIO
Eloxx Pharmaceuticals Stock Quote
Eloxx Pharmaceuticals
ELOX
$0.19 (-7.34%) $0.02
Proteostasis Therapeutics Stock Quote
Proteostasis Therapeutics
PTI

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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