Shares of Vertex Pharmaceuticals (VRTX +1.13%) are down about 8% from a peak they reached this January. The price action doesn't jive with the biopharmaceutical company's cash flows and the potential value of the assets it's developing.
Following some encouraging announcements in its recent first-quarter report, Piper Sandler raised its price target on Vertex stock to $456 per share, which implies a gain of around 12% over the next 12 months.
NASDAQ: VRTX
Key Data Points
In addition to unrivaled cystic fibrosis (CF) treatments, analysts are encouraged by several new blockbuster drugs that could be in Vertex's development pipeline. Here are five reasons Wall Street is right to pound the table on this stock.
1. An unstoppable cystic fibrosis franchise
Hundreds of potential mutations to the cystic fibrosis transmembrane conductance regulator (CFTR) gene hamper its function. Poorly functioning CFTR proteins do the most damage in the lungs, where they produce thick, sticky mucus that is hard to clear.
In 2012, Vertex's first CF therapy, ivacaftor, earned approval to improve faulty CFTR proteins for a few CF patients. Since then, it's combined ivacaftor with additional drugs that improve how CFTR functions for the vast majority of CF patients.
Vertex reported first-quarter CF product sales that rose 13% year over year to $2.7 billion. About 12 years after becoming the first company to sell treatments that address the root cause of CF, it still has no competitors in this space.
Ivacaftor's been around a long time, but Vertex investors don't need to worry about competition from generics for a long time. The vast majority of the company's CF revenue comes from Trikafta, a three-drug combo that launched in 2019.
In the first quarter, Vertex submitted applications for a new triplet therapy that includes a new molecular entity called vanzacaftor, and a slightly longer-lasting version of ivacaftor. By the end of 2024, Vertex could earn FDA approval for the new vanzacaftor triplet therapy and push a potential patent cliff much further into the future.
2. The Casgevy launch
Last December, the FDA approved Casgevy, a once-and-done gene therapy Vertex developed in partnership with CRISPR Therapeutics, to treat patients with severe sickle cell disease (SCD). In January, the FDA expanded Casgevy's approval to include patients with transfusion-dependent beta-thalassemia (TDT).
Casgevy is the first approved therapy that uses CRISPR/Cas9 to modify the genome of human cells. For patients with SCD or TDT, treatment with Casgevy involves the removal of their stem cells and modifying them to produce fetal hemoglobin. Once reinfused, the modified cells should allow patients to live the rest of their lives without requiring frequent blood transfusions.
If Casgevy becomes popular among SCD and TDT patients, it could become a blockbuster therapy, with over $1 billion in annual sales. That said, sales of complex cellular therapies tend to miss prelaunch projections.
3. Upcoming submission for suzetrigine
Suzetrigine, formerly VX-548, is an orally available treatment candidate that inhibits NaV1.8, a protein that plays a role in the transmission of pain signals to our brains. In January, Vertex told investors that suzetrigine succeeded in a pair of phase 3 studies.
In the studies, patients who underwent bunion removal surgery or a tummy tuck were treated with suzetrigine or placebo after the procedure. Patients given suzetrigine reported significantly lower pain intensity, without any serious side effects.
The FDA has already begun accepting portions of an application that could make suzetrigine an important non-opioid acute pain relief option in early 2025. Vertex expects to complete the suzetrigine application by the end of June.
In addition to an acute pain indication, Vertex is developing suzetrigine for chronic use. A phase 3 trial with patients who suffer from diabetes-related nerve pain is slated to begin in the second half of the year.
4. Alpine acquisition
In addition to developing new drug candidates internally, Vertex's CF profits have grown large enough that it can acquire smaller drugmakers and their pipelines whole. In April, Vertex announced an upcoming acquisition of Alpine Immune Sciences for $4.9 billion in cash.
Alpine is in late-stage clinical trials with povetacicept, an experimental treatment that could be used to treat several autoimmune-related kidney diseases.
Vertex doesn't need success from Alpine's assets to deliver market-beating gains in the years ahead. If povetacicept succeeds, though, it could make this one of the best-performing stocks in your portfolio over the next several years.
5. Reasonably priced
Vertex raised earnings per share by about 83% over the past three years. With Casgevy, a new CF triplet therapy, suzetrigine, and povetacicept on deck, the next several years could be as successful as its recent past.
Lately, shares of Vertex Pharmaceuticals have been trading for 23.9 times forward earnings expectations. That's a fair price to pay for the CF drugs that it's already marketing. In other words, investors who buy Vertex at its recent price are getting Casgevy plus all its clinical-stage assets for free. That's a hard deal to pass up.
