Cystic Fibrosis is one of the scariest diseases you can imagine. It's genetic, so its victims are children. It attacks breathing and digestion. Many sufferers don't make it to adulthood, although today half of the roughly 70,000 sufferers are over 18. Vertex Pharmaceuticals Incorporated (NASDAQ: VRTX ) is attacking the disease at its genetic causes, and VRTX stock is making progress.
The numbers being treated are still small - in the hundreds - and its medicines don't work against all the mutations that CF people suffer from.
But Vertex Pharmaceuticals is doing enough to have become a hot stock in 2017. The value of VRTX stock has more than doubled. The market cap is approaching $40 billion. It has achieved year-over-year sales growth of 20%, on top of 70% growth for all of 2016, and it has shown profits for three straight quarters.
Vertex Pharmaceuticals: Getting Paid
The big problem for Vertex, outside the U.S., is getting paid. The high price of orphan drugs makes European health systems leery of approving reimbursements. The big news this year was approval of its drug Orkambi in two markets - Ireland and Italy - and it has more drug candidates in the pipeline.
Vertex is determined to remain primarily a drug investigation company, and it is using its profits directly in research, CEO Jeffrey Leiden said while its money today comes from fighting CF, its research is focusing on other, similar diseases that might succumb to genetic treatment.
InvestorPlace contributor Nicholas Chahine writes that by using options you can capture some of the gains in VRTX stock that have already happened. Selling puts while optimism is high is one way to make a solid profit.
Since Chahine wrote, the news at Vertex has only gotten better, with Food and Drug Administration approval of another Vertex formula, Kalydeco, now covering up to 38 mutations (out of 2,000 possible) and fully one-tenth of the patient population. Note that adding just 600 patients to its list adds $136 million in revenue.
But there could be much more to come. By combining up to three medications into a single pill, VRTX could soon be treating 90% of CF patients. It could have a virtual monopoly on the space by this time next year.
VRTX Stock: The Buyout Remedy
With the CF space looking wrapped-up, and the way to continued profit clear, Vertex would become a potential bolt-on acquisition to any large pharma company.
A $40 billion market cap would be no problem for companies like Pfizer Inc. (NYSE: PFE ), Novartis AG (ADR) (NYSE: NVS ) or Johnson & Johnson (NYSE: JNJ ), and a bidding war looks possible. Big drug companies are always looking for drugs that have a long patent runway, solid growth prospects, and that treat dread diseases. The company that whipped CF counts as all that.
The Bear Case for VRTX
The bear case for Vertex can be seen in the stock chart for Gilead Sciences, Inc. (NASDAQ: GILD ), whose Harvoni and Sovaldi are winning the battle against Hepatitis C.
That company made the same decision Vertex has made, to remain independent, book profits and continue researching. The shares peaked in the middle of 2016 and, while the drug is highly profitable, GILD stock now sells at a price-to-earnings multiple of 8.23, much lower than its peers.
If that is the future of Vertex Pharmaceuticals, then now might be a time to sell, not buy. You buy a stock before it delivers a cure, and profit when that cure is delivered, then sell the stock for a fat gain. We could be approaching peak Vertex, if it chooses not to get bought out.
If you do buy VRTX stock keep an eye on it, and be ready to sell once its success seems assured.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time , available now at the Amazon Kindle store. Write him at email@example.com or follow him on Twitter at @danablankenhorn . As of this writing, he owned no shares in companies mentioned in this article.
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