Vertex Pharmaceuticals (NASDAQ:VRTX) kicked off the new month with good news in the form of its first-quarter earnings report. The company beat on both the top and bottom lines and confirmed its full-year guidance. The VRTX stock price slipped in after-hours trading, but it was up over 10% in the week and 19% for the year leading up to earnings.

If I was an investor, I’d be looking into the reason why.  Because in this case, that story is more important than what the earnings report said.

Not that the earnings report was bad — far from it. The top and bottom line beats were solid, as was the guidance reconfirmation. But investors may not like the fact that earnings were down 3.4% from the prior year. Or it could just be because investors are anxious about the Federal Reserve’s rate decision.

Or because it’s Monday. It can be tricky to trade stocks around earnings reports.

But your challenge as an investor is to look for the bigger story. When it comes to a biotech company like Vertex that means looking at the pipeline.

And that’s where the bulls may have a chance to run.

Larger Addressable Audience

There are close to 40,000 children and adults living with cystic fibrosis in the United States (and an estimated 105,000 people have been diagnosed with CF across 94 countries), according to the Cystic Fibrosis Foundation. Approximately 1,000 new cases of CF are diagnosed each year. More than 75 percent of people with CF are diagnosed by age 2.

On April 26, Vertex received FDA approval for an expanded use authorization for its Trikafta cystic fibrosis drug. This will allow the drug to be used for children with CF ages 2 through 5 years that meet certain conditions.

The next day, there was good news from Brussels, Belgium. The European Medicines Agency’s Committee for Medicinal Products for Human Use issued a positive opinion that expands the label of another CF drug, Orkambi. This will allow the drug to be used to treat children with CF ages 1 to under 2 who also meet certain criteria.

Vertex Pharmaceuticals is the unquestioned leader in cystic fibrosis treatment. Even with that said, the potential growth shouldn’t be understated. CF drugs make up the company’s entire revenue stream. Total product sales for the category were up 13% to $2.37 billion. And Trikafta was responsible for $2.1 billion of that number.

But there’s potentially much bigger news on the horizon.

Expanding Into Gene Therapy and Gene Editing

The Boston-based company has been exploring the fields of gene therapy and gene editing. In the last year or so, Vertex has entered a partnership with CRISPR Therapeutics (NASDAQ:CRSP). And in the last month, the companies have achieved milestones that bring them one step closer to potential breakthrough treatments for sickle cell disease (SCD) and transfusion-dependent beta thalassemia (TDT) as well as Type-1 Diabetes.

Go Where the Big Money Already Is

If you’re looking for another reason to consider a position in VRTX stock, look to the institutional investors. Currently these investors — or the “big money” — are heavily invested. And according to data compiled by Fintel, of 2,493 total institutional investors, 2,456 are long ONLY.

There are many reasons why institutional investors may short a stock, but there’s only one reason for them to go long. And I’ve explained why the institutions may be getting frothy about VRTX stock.

The shares are the third-largest allocation in the VanEck Biotech ETF (US:BBH), at a weight of 9.02% of that exchange-traded fund’s 26 holdings.

Now trading at 26x earnings, the shares aren’t cheap. And the stock is extended above its buy range with a relative strength index, or RSI, nearing 70.

Traditionally the RSI is considered overbought when above 70 and oversold when below 30. But that just means you can use a pullback for a chance to get in on a stock that may just be getting started.

This article originally appeared on Fintel

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.