Vertex Stock: Selloff Is a Buying Opportunity

It’s a simple life in the biotech stock universe. Announce strong clinical data – stock goes up. Disclose negative findings – stock goes down. Where things get a bit more nuanced is when the stock heads too far in either direction.

In the case of Vertex Pharmaceuticals (VRTX), Jefferies’ Michael Yee thinks that following the company’s latest announcement, the pendulum has swung too far into negative territory.

Shares took the down escalator after the biotech giant disclosed it was discontinuing the clinical program for VX-864, the company’s experimental treatment for people with alpha-1 antitrypsin (AATD), a rare genetic disorder which can result in liver and lung disease.

While VX-864 met its primary endpoint, displaying a mean increase of 2.2 to 2.3 micromolar fAAT levels across the dose cohorts vs. the placebo, the mid-stage trial’s results weren’t strong enough to convince the company to continue with the program. There are no FDA approved treatments for the underlying protein folding defect behind AATD and getting one to market could be highly lucrative, so investors were excited about the drug’s potential.

With the “next big AAT catalyst” now far in the distance (H2:22), the study’s discontinuation, says Yee is a “setback on the surface and from NT (near term) stock perspective.”

That said, Yee thinks investors should keep the big picture in mind when considering Vertex’ prospects.

“Short-term investors ‘perceive’ a miss here and a data vacuum in near term,” Yee said. “But longer-term investors should find lots of value at $185-190 and trading below its CF (cystic fibrosis) base value of $200-225 implying all the pipeline such as sickle-cell disease is all free now. We’re buyers appreciating it may take time to get back up.”

All in all, there’s no change to Yee’s rating which stays a Buy although the price target is slashed from $280 to $225. The new figure implies 20% upside from current levels. (To watch Yee’s track record, click here)

While Yee expects the stock to move lower still as investors “lose some faith in the R&D pipeline engine,” a look at the rest of the Street’s take reveals most analysts remain in Vertex’ corner. The stock has a Strong Buy consensus rating based on 18 Buys and 5 Holds. There’s decent upside projected too; at $261.68, the average price target suggests one-year share appreciation of ~40%. (See VRTX stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.