This Biotech Has the Most Valuable Pipeline Asset in the World — Is the Stock a Buy?

From nowhere to No. 1. That’s where Vertex Pharmaceuticals (NASDAQ: VRTX) finds itself on an important listing.

Every year, market research firm EvaluatePharma looks at all of the pipeline programs in the biopharmaceutical industry and ranks those programs based on its calculation of net present value for each drug.

In 2017, Vertex didn’t claim a pipeline drug in EvaluatePharma’s top 10. This year, the biotech’s triple-drug combination of VX659, tezacaftor, and ivacaftor ranked No. 1 with a calculated net present value of more than $13 billion. But is Vertex stock a smart pick to buy right now?

Image source: Getty Images.

Earning the top spot

Last year, Biogen‘s experimental Alzheimer’s disease drug aducanumab stood atop EvaluatePharma’s list of most valuable pipeline assets. However, the drug fell to No. 3 on the 2018 list — in part because of a perceived higher risk in the midst of multiple failures of other therapies in treating Alzheimer’s disease.

Vertex’s triple-drug CF combo featuring VX659, tezacaftor, and ivacaftor vaulted to the top of EvaluatePharma’s ranking based on encouraging phase 2 results. The data from these phase 2 studies showed impressive improvement in breathing for cystic fibrosis patients with one F508del mutation and one minimal function mutation in the CFTR gene. (Minimal function mutations result in CFTR genes producing CFTR protein that either don’t function at all, or barely function and aren’t responsive to Vertex’s other CF drugs.)

The biotech began its first phase 3 clinical study of the VX659 combo in February of 2018. This study will assess CF patients taking the therapy for 24 weeks, with another group of patients receiving placebo. However, Vertex plans to use efficacy results after four weeks of treatment and safety results after 12 weeks of treatment to support its regulatory filing for the triple-drug combo.

If approved, the VX659 combo could generate sales of nearly $3.5 billion by 2024. And it should be more profitable than Vertex’s already-approved CF drugs. Vertex CEO Jeff Leiden mentioned earlier this year that the company renegotiated an agreement with Cystic Fibrosis Foundation Therapeutics Incorporated to pay lower royalties on its triple-drug combos than it does for its other CF products.

The rest of the story

Those other CF products are the reason Vertex is now profitable and sitting on a nice cash stockpile. The biotech first won FDA approval for Kalydeco in 2012. Over the next few years, the drug picked up additional approvals for treating younger patients and patients with additional CF mutations.

Vertex’s second CF drug, Orkambi, won FDA approval in 2015. The next year, Orkambi gained FDA approval in treating children ages six to 11 with CF who have two copies of the F508del mutation. The biotech recently launched its third CF product, Symdeko, following a February 2018 FDA approval.

Both Orkambi and Symdeko were two-drug combos featuring ivacaftor (Kalydeco). Symdeko is a combination of tezacaftor and ivacaftor. However, Vertex thinks its triple-drug combos will greatly expand the number of CF patients who can be treated.

The VX659 combo isn’t the only triple-drug combo the company is evaluating in late-stage clinical studies. Vertex also has other phase 3 studies in progress for a combination of VX-445, tezacaftor, and ivacaftor. As with the VX659-based combo, the biotech plans to submit for regulatory approval of its VX-445 combo based on four-week efficacy data and 12-week safety data.

Vertex knows that as powerful as its triple-drug combos should be, there will still be some CF patients with no effective treatment. That’s why the company partnered with CRISPR Therapeutics (NASDAQ: CRSP) to develop gene-editing therapies targeting CF mutations that Kalydeco, Orkambi, Symdeko, and the triple-drug combos won’t address. The two biotechs also teamed up to develop gene-editing therapies targeting genetic blood diseases beta-thalassemia and sickle cell disease.

In addition, Vertex is developing drugs to treat pain. In February, the company announced positive results from a phase 2 study of VX-150 in alleviating pain in patients following bunionectomy surgery. Vertex has another phase 2 study under way for VX-150 and also initiated a phase 1 study of another experimental pain drug, VX-128, earlier this year.

Is Vertex stock a buy?

Vertex stock more than doubled in 2017. So far this year, though, the stock has cooled off considerably — in part because of a clinical hold placed by the FDA on Vertex’s and CRISPR Therapeutics’ planned phase 1 study of a gene-editing therapy targeting sickle cell disease. However, I think the FDA’s questions will be satisfactorily answered and that the future looks very bright for Vertex.

My view is that Vertex will continue to dominate the CF therapy market despite the potential for new competition from AbbVie and Galapagos within the next couple of years. I think Vertex will use its financial flexibility gained from its CF products to expand into new therapeutic categories.

The stock might seem expensive, with shares currently trading at nearly 35 times expected earnings. However, Vertex should generate strong growth for years to come. I think these growth prospects actually make the biotech a bargain right now.

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Keith Speights owns shares of AbbVie and Vertex Pharmaceuticals. The Motley Fool owns shares of and recommends Biogen. The Motley Fool owns shares of CRISPR Therapeutics. The Motley Fool recommends Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.

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