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Don’t Blink or You’ll Miss Vertex’s Next Move, And It’s Bound to Be a Good One

Caroline Banton, The Motley Fool

Some pundits advise against pharma, at least for the short term. Business Standard describes pharma vehicles as laggards over the past year, with an average return of only 1.74% and returns of 4.9% compounded annually over the past five years.

It would seem, however, that Vertex Pharmaceuticals (NASDAQ: VRTX) is paying no attention to such invectives. As if in defiance, the company's moves over recent weeks and months could be likened to a surgical chess game designed to silence its critics. If you haven't been paying attention, here are the developments on the Vertex vortex.

A stethoscope over hundred dollar bills

Image Source: Getty Images

Strategic acquisitions, partnerships, and lucrative licenses

The onslaught began in earnest in January when the company made a deal that focused on gene editing with Arbor Biotechnologies. Then, in May, the company announced a partnership to further pursue protein degradation with Kymera Therapeutics. Kymera will invest $70 million upfront for a four-year research and development collaboration targeting serious diseases. As part of the agreement, Kymera will perform the research activities, but Vertex can license the program and stands to benefit from a package of milestones that could total more than $1 billion. 

In June, Vertex invested $420 million to further explore the muscular dystrophy space. A deal was expanded with CRISPR Therapeutics for $175 million, and $245 million was used to acquire Exonics and its gene-editing pipeline.

A cure for type 1 diabetes could be a long haul

Most notably, in early September, Vertex acquired Semma Therapeutics for $950 million. This news caused waves as it marks the company's first forays into finding a cure for type 1 diabetes. This serious disease is inadequately controlled by existing therapies, and there is a huge demand for treatment.

O.K. So, we know that it's very early to get too excited about a potential winner on the type 1 diabetes front for Vertex; Vertex has not yet even begun clinical studies. But the company is wise enough not to rely on just one move in its overall strategy. The company has many irons in many fires, all of which are staying hot.

Vertex has been a leader in cystic fibrosis drugs and has a triple-drug combo that is likely to see FDA approval in March next year. The company is also advancing an experimental AATD drug VX-814 into a phase 2 clinical study for patients with two Z mutations. Data should also come next year. The company is also involved in early stage studies for its therapies targeting beta-thalassemia, sickle cell disease, and rare kidney disease APOL1-mediated focal segmental glomerulosclerosis (FSGS).

Can Vertex sustain its bold and risky onslaught? A stock buyback seems to indicate so.

Stoked confidence and stock buybacks

With barely any room to breathe, on July 31, Vertex's pocketbook was further emptied by an announcement for a $500 million stock buyback – a sure sign that the company feels its stock is undervalued despite considerable spending and investment. A look at the financials would seem to support Vertex's musings.

The company has a strong debt-to-equity ratio at 0.12, which compares well with competitors Illumina Inc. at 0.42 and Alexion Pharmaceuticals Inc. at 0.26. The company has projected EPS growth of 12.28% compared to 10.81% and clear capability of meeting stockholder payouts with a current ratio of 3.74 versus the industry average of 5.4. Zacks ranks the stock a buy and ranks it third out of 16 in the biotech sector.

The latest earnings report in late July showed quarterly earnings of $1.26 per share, which beat the Zacks Consensus Estimate of $1.03 per share, and compares to earnings of $0.94 per share a year ago. Also, the company has exceeded EPS estimates each time for the past four quarters and has done the same for revenues. Vertex posted revenues of $941.29 million for the quarter ended June 2019, surpassing the Zacks Consensus Estimate by 6.52%. Year-ago revenues were $752.16 million.

With numbers like these, if you feel like dipping your toes in the fast-flowing biotech waters or watching a stellar game of chess among fierce biotech players, Vertex might be a good bet.

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Caroline Banton has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Illumina. The Motley Fool owns shares of CRISPR Therapeutics. The Motley Fool recommends Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.

This article was originally published on Fool.com