Vertex (VRTX) dropped 20% in mid-October on news that phase 2 trials for one of its drugs had been halted. The drug was designed to treat a genetic anomaly that leads to lung disease, notes growth stock expert Stephen Leeb, editor of The Complete Investor.
We view the drop in the shares as an overreaction, and it has created an excellent buying opportunity. At current levels the stock has minimum downside risk, while its upside is unlikely to be affected by the disappointment.
Over the next five years Vertex’s growth will hang largely on the company’s cystic fibrosis (CF) franchise. Vertex’s FDA-approved suite of drugs for CF provides dramatic relief, with approximately 90% of CF sufferers responding positively. The CF franchise easily justifies the current price.
In addition, Vertex and CRISPR Therapeutics (CRSP) — which was founded by one of co-winners of this year’s Nobel Prize in chemistry — have agreed to jointly develop a number of drugs.
They are off to a good start as early human studies indicate both efficacy and safety of treating two serious blood diseases, sickle cell disease and beta thalassemia.
Meanwhile, Vertex is not averse to acquisitions. Indeed, the company’s game-changing results in CF owe much to the current chairman Jeffrey Leiden. Prior to his role at Vertex he was head of Abbott Labs (ABT), where he led the development of one of the most successful drugs of all time, Humira.
We emphasize Leiden’s acumen because of two other acquisitions he has overseen at Vertex. One was a hefty half billion-dollar purchase of Semma Therapeutics, which is working on a cure for type 1 diabetes using stem cell technologies.
The other was Exonics, which is working on a cure for a severe form of muscular dystrophy using CRISPR. While the success of either or both of these acquisitions is far from assured, they are not crapshoots.
There’s no way to know for sure, but there are indications that Vertex’s future won’t be defined by the recent failure of one molecule. We continue to view Vertex as one of the most attractive plays in the biotech arena.
