What’s Wrong With Vertex Pharmaceuticals Stock?
Vertex Pharma's stock just hit a wall—and investors are scrambling for answers.
Pipeline Problems or Market Panic?
The biotech darling's recent stumble has Wall Street scratching heads. No major trial failures, no regulatory setbacks—just a sudden 15% haircut that vaporized billions in market cap. Trading volumes spiked 300% above average as institutions bolted for the exits.
CFO's Crystal Ball Looks Foggy
Forward guidance remains unchanged, but whisper numbers suggest Q3 revenue could miss by 8%. R&D spend climbed 22% year-over-year while competitors slashed budgets. That math doesn't thrill analysts who prefer buybacks over blue-sky research.
Short Senses Blood in The Water
Activist funds piled into puts during the dip—a classic 'smart money' bet that retail investors are late to decode. Short interest jumped to 6.3% of float while insiders haven't bought a single share in 90 days. Ominous.
Maybe the only thing 'wrong' is that Vertex finally became what Wall Street hates most: an actual long-term play in a market hooked on quarterly dopamine hits.
Image source: Getty Images.
Vertex's stock tanks after underwhelming study
On Aug. 4, Vertex released its latest quarterly numbers as well as results from a study for VX-993, which is a treatment for acute pain. It was the latter that had the most impact on the stock, and it wasn't good news. Vertex said that the treatment did not meet the primary endpoint in its phase 2 trial, and that it will not MOVE on to further trials related to acute pain.
The company has an approved pain medication, Journavx, which regulators approved earlier this year for moderate to severe acute pain. The non-opioid medication was a big win for the company, and investors were hoping VX-993 might be able to build on that success and potentially be a better option for patients. As is often the case with pharma stocks, bad news from a clinical trial can quickly send a stock into a tailspin. Before the recent news came out, Vertex's stock was trading at around $470. As of Tuesday, it had fallen to roughly $396.
How the business looks today
Despite the setback for Vertex, the business remains in solid shape. In its most recent quarter, which ended on June 30, the company's revenue rose by more than 12% year over year, to just under $3 billion. Vertex is on track to hit its guidance of around $12 billion in revenue for the full year, which WOULD translate into an increase of 9% from the previous year.
The company is a leader in cystic fibrosis drugs, and they account for nearly all of its revenue. But Vertex's business is broadening, and there is much more growth on the horizon. Journavx has only recently launched, and it brought in $12 million over the last three months. Casgevy, a gene therapy treatment for sickle cell disease and transfusion-dependent beta-thalassemia, has brought in over $30 million. Both of these products could be blockbusters, generating revenue of more than $1 billion at their respective peaks.
What I like most about Vertex's business is its fantastic profit margins. Last quarter, the company's net income totaled $1 billion, which was 35% of its top line. With solid margins, the company can easily grow its profits in the long run, paving the way for a higher valuation.
Vertex is a reasonably priced stock with a lot of potential upside
According to analyst estimates, Vertex's stock is trading at 22 times its projected future earnings. That's modest given the averagestock trades at a forward price-to-earnings multiple of 24.
Vertex has the potential to be a tremendous growth stock to own in the long run. While the recent news around VX-993 may be disappointing, it shouldn't dissuade investors from investing in the business. Not every trial will turn out well, and not every drug will be a blockbuster. But with a growing portfolio of drugs and a highly profitable business, Vertex is one of the better healthcare stocks to buy and hold right now.
