Vertex Pharmaceuticals (VRTX +0.15%) has a robust business that centers around cystic fibrosis therapies. But its growth rate has been slowing down of late. And despite having a stellar pipeline and encouraging growth prospects, the stock's returns over the past year have been nominal.
Now, with the company announcing plans for a big $10 billion acquisition of Crinetics Pharmaceuticals (CRNX +0.22%), could that make the pharma stock a much better buy, perhaps even a no-brainer buy at its current valuation?
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The deal could inject a ton of growth into Vertex's business
Crinetics is a company that develops treatments for endocrine diseases and disorders. This is a company that's still in its early growth stages, as last year its revenue totaled less than $8 million and its net loss was over $465 million.
But it has multiple promising assets in its portfolio, including Palsonify, which was approved last year to treat acromegaly, which is a hormonal disorder that can cause an enlargement of certain parts of the body. Atumelnant is not approved yet, but it is in the midst of clinical trials and is a treatment for congenital adrenal hyperplasia, which relates to multiple genetic conditions that impact the adrenal glands. Combined, these drugs could add $5 billion in annual revenue to Vertex's top line. The deal is expected to close fairly soon -- in the third quarter of this year.
That is significant given that last year, Vertex's revenue totaled $12 billion, which was an increase of nearly $1 billion, or about 9%, from the previous year. This acquisition could drastically grow its business.
NASDAQ: VRTX
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Should investors buy the dip on Vertex Pharmaceuticals?
Despite the promising growth angle here, Vertex's stock has fallen after announcing the cash deal. That isn't entirely surprising, as the acquiring company normally sees its shares fall after a major acquisition, as investors may be concerned about the price paid for the business, the drag on earnings in the short term, and whether it will truly pay off. In short, it adds some risk.
However, with Vertex's management doing a great job of growing the business over the years and raking in some strong profits, it appears to be a well-calculated move. The healthcare stock is a bit expensive, trading at 29 times its trailing earnings, but given how much more diverse the business has become and its enhanced growth prospects, it could be a no-brainer buy on weakness right now, particularly for long-term investors.
