Vertex Pharmaceuticals (VRTX -0.27%) has been a big disappointment for investors in 2021. While the S&P 500 index soared nearly 30%, Vertex's shares are down 5%.
Investors are much more focused on where a stock might be headed than where it's been in the past, though. But there are often different views on what the future holds for a given stock. That's definitely the case with Vertex. Here are both bull and bear arguments for the biotech stock.
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Potential game changers on the way
Keith Speights: What I like most about Vertex is that the company isn't resting on its laurels. The big drugmaker commands a monopoly in cystic fibrosis (CF) treatment. And it is using the cash generated by its enormously successful CF franchise to invest in developing therapies that could be game changers.
Vertex and CRISPR Therapeutics hope to file for regulatory approvals for CTX001 by late 2022 in the beta-thalassemia and sickle cell disease indications. CTX001 could be the first CRISPR gene-editing therapy on the market. It doesn't just treat beta-thalassemia and sickle cell disease; one infusion of CTX001 holds the potential to cure the disease in some patients.
Meanwhile, Vertex has another internally developed program that could also enable the company to expand beyond CF. On Dec. 1, it announced promising results from a phase 2 study evaluating VX-147 in treating the rare kidney disease APOL1-mediated focal segmental glomerulosclerosis (FSGS). The company plans to advance VX-147 into pivotal testing in early 2022 focused on APOL1-mediated kidney disease. Over 100,000 patients in the U.S. and Europe have this genetic disease, representing a larger potential market than CF.
Vertex also reported encouraging data in October for VX-880 in treating 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 just might have a cure for type 1 diabetes on the way.
Be bearish about Vertex if you're bullish about the market
Taylor Carmichael: I think Vertex Pharmaceuticals is a fine stock to own. With its drug Kalydeco, it's been the dominant name in cystic fibrosis (CF) for years. The website DrugPatentWatch estimates that it won't face generic competition until 2029. That's one of the main threats to a pharmaceutical company with one dominant drug: When will it fall off the patent cliff? Vertex investors have almost a decade to plan ahead. And with the arrival of the biotech's next-gen CF molecule, Trikafta, that loss of Kalydeco revenue might actually be a nonevent. And the Trikafta patent is good until 2037.
As you can tell, I'm not particularly bearish on the stock. Drug companies with a dominant franchise like Vertex have sweet profit margins (30%), and the company still qualifies as a growth stock with 29% revenue growth. What's not to like?
Well, I think every stock you buy should be compared with a market index fund, such as the SPDR S&P 500 ETF. And remember: When we're talking about "the market," we're talking about world-beaters like Apple, Amazon, Microsoft, and so on. So while Vertex is a fantastic biotech company, I think it will likely trail any tech-heavy index fund in performance over the next decade.
VRTX data by YCharts.
So in isolation, I like Vertex just fine. The company has a strong monopoly in cystic fibrosis, and it could surprise to the upside with positive trial results from its pain medication, its diabetes drug, or maybe its sickle cell drug, all of which are in early clinical trials. Those drugs are several years away from any possible Food and Drug Administration approval.
For me, an investment in Vertex is really kind of a macro question. Where do you think the stock market is going over the next five to 10 years? If you're a bull, an S&P index fund is probably a safer and more successful bet. But if you're bearish on the stock market, if you are worried about a tech wreck or rising interest rates, then Vertex is the stock for you.
Patients with cystic fibrosis are going to buy the company's drugs, even if the economy is crashing all around us. Nervous Nellies should be jumping on Vertex -- this is one of the safest stocks around, in my opinion. But it's likely to lag the market over time.
Is Vertex a stock for you?
Individual investors will need to determine for themselves whether the bull or bear case for Vertex is stronger. The stock could have multiple catalysts on the way. But, as Taylor mentioned, it's possible that other stocks (and even index funds) could outperform it.
