The Biotech That Has Almost Doubled in 2017 With the Potential to Boom Even More

Vertex

As reported yesterday, 2017 has been a good year for investors, with the S&P 500 up about 15 percent year to date. At least three biotech companies, Loxo Oncology, Nektar Therapeutics, and Spectrum Pharmaceuticals have had a particularly good year. Keith Speights, writing for The Motley Fool, notes one more biotech that’s booming, Vertex Pharmaceuticals.

Based in Boston, Vertex currently has two treatments for cystic fibrosis on the market, Orkambi (ivacaftor/lumacaftor) and Kalydeco (ivacaftor). For this year, Orkambi is projected to rake in around $1.3 billion, while Kalydeco is likely to bring in $800 million.

Speights writes, “Success for these two drugs has definitely made Vertex attractive to investors, but the stock’s momentum in 2017 has resulted even more from the biotech’s pipeline. In March, Vertex announced positive results from a couple of late-stage studies evaluating a combination of tezecaftor and ivacaftor in treating CF. An approval decision from the FDA is expected by Feb. 28. The biotech followed up a few months later with solid results from Phase I and Phase II studies of three different triple-combination CF therapies.”

Vertex is part of the 349 companies that make up the Biotechnology GICS industry group. That group is part of the 781 companies in the GICS Health Care sector. Vertex’s market value is $37.2 billion, which places it in the top portion of its industry group, rating 60 out of the 349 companies.

Portfolio Grader recently ranked Vertex as a “buy.” According to InvestorPlace, Vertex received above-average scores in four out of eight fundamental metrics that Portfolio Grader uses, and average or below-average in the four other areas. InvestorPlace writes, “Vertex’s operational scores provide mixed results with a ranking for sales growth that is well above the industry average but rankings for operating margin and earnings growth are below average. Scores for visibility of earnings are mixed, with a ranking for earnings revisions and earnings surprises that are significantly better than average, while the score for earnings momentum is much worse than average. Vertex’s metric for return on equity is materially better than its industry group average but its ranking for cash flow is below-average. Based on these fundamental scores, Vertex Pharmaceuticals places in the top quartile of the industry group.”

Vertex stock is currently trading for $146.10. On Dec. 22, 2016, shares traded for $72.02, but on July 24, 2017, shares traded for $166.11.

Recently, on Nov. 3, Vertex stock jumped 3.5 percent compared to its rival Galapagos, which fell 2.7 percent. Both companies had made presentations at the North American Cystic Fibrosis Conference held in Indianapolis. Geoffrey Porges, an analyst with Leerink, wrote in a note to investors, “Galapagos has well-researched molecules that have intriguing activity in a variety of laboratory systems and molecular models for cystic fibrosis, but so far it is difficult to know if these molecules will actually make viable drugs.”

Both companies are developing triple-combination therapeutics for CF, and Galapagos is several years behind Vertex. Vertex has four possible triple-combo therapies in mid-stage trials. As a result, Galapagos appears to be rushing, which has raised some eyebrows among analysts. Porges wrote, “Given their lack of progress with their combinations in the U.S., we don’t foresee the sort of rapid development timeline for Galapagos’ combinations in the U.S. that they are proposing and planning for Europe.”

Galapagos has backing from AbbVie, and expects to get its combo-therapy to Phase III trials in 2019. But their approach is likely to be only in Europe, because the U.S. Food and Drug Administration (FDA) has yet to sign off on its strategy of introducing molecules by way of single-drug and add-on studies initially, moving into triple-combo trials quickly afterwards.

Investor’s Business Daily notes, “AbbVie would likely prefer a more traditional and complete path to expensive Phase III testing, he [Porges] said. Before that, AbbVie will have to decide whether to opt in or out of the deal.”

Porges went on to write, “Should AbbVie discontinue, or delay a decision about going forward, this would be viewed negatively for Galapagos and positively for Vertex. Such a decision doesn’t seem imminent, which is fortunate for Galapagos, but will make for challenging times for Galapagos if AbbVie opts out, or doesn’t advance any of the combinations.”

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