Why Argus Thinks Now Is the Time to Buy Vertex

Vertex Pharmaceuticals Inc. (NASDAQ: VRTX) is one of the companies that suffered from this pullback within the sector. As a result, Argus has been waiting for a better valuation to upgrade this company to a Buy rating with a $126 price target. This recent weakness in the stock price has given the firm the opportunity.

This company discovers, develops and commercializes innovative therapies to address major medical problems. Its primary focus areas are cystic fibrosis, rheumatoid arthritis and epilepsy. Vertex’s earnings outlook has become more transparent over the past year, based on positive results from multiple Phase 3 trials of new cystic fibrosis drugs, including Orkambi, which has recently been approved by the FDA and has blockbuster potential. Vertex’s earnings potential is strong, as the company has no competition in the cystic fibrosis market.

However, product pricing and reimbursement issues remain a real risk in this era of skyrocketing medical costs. In light of the recent pullback in the stock price, the company’s price/sales ratio is now at the low end of the industry range.

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Argus said in its report:

Vertex’s future growth depends largely on its pipeline. In addition to Orkambi, two new treatments, VX-509, for rheumatoid arthritis, and VX-787, for influenza A, are in phase II clinical trials. We do not expect either drug to reach the market in the near term. Vertex is also testing Kalydeco with VX-661 in another attempt to expand its reach into the CF market. Phase II trials of this combination failed to generate the excitement of Orkambi, but management has moved the product into Phase III testing. Orkambi is also being tested in children ages 6-11. Lastly, in the second quarter, Vertex and Parion Sciences entered into a collaboration to develop investigational epithelial sodium channel (ENaC) inhibitors, including VX-371 (P-1037), for the potential treatment of CF and other pulmonary diseases.

Shares of Vertex were down 1.8% at $101.34 midday Monday. The stock has a consensus analyst price target of $142.48 and a 52-week trading range of $96.43 to $143.45.

The shares have underperformed the market over the past year, with a decline of 9%, compared to a 2% drop in the S&P 500. Over the past two years, they have outperformed, with a gain of 35%, compared to a 14% increase in the broader market. The two-year returns have been driven by the positive pipeline news, as well as takeover rumors.

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