Why the Struggling Growth Stock Offers an Attractive Buying Opportunity Amidst Price Decline
Why the Struggling Growth Stock Offers an Attractive Buying Opportunity Amidst Price Decline
Every financial advisor knows the saying "buy low, sell high." It's simple enough in concept, but implementing it can be tricky. A company's shares falling dramatically in a single day after a minor setback that won't affect its long-term success is a good opportunity to buy low.
This is exactly what happened to Vertex Pharmaceuticals (VRTX -0.46%), a biotech company. Here's why now might be the perfect time to invest in this stock.
Vertex's pain medicine falls flat
Vertex Pharmaceuticals' suzetrigine is an experimental pain treatment. It's expected to receive its first approval for treating acute pain as early as next month. After that, it will aim for label expansions, including targeting painful lumbosacral radiculopathy (LSR, a back condition caused by a pinched or inflamed nerve). Unfortunately, the market wasn't impressed with the results from a phase 2 study Vertex released for suzetrigine in LSR.
The drug met its primary endpoint of reducing daily leg pain intensity, as measured by the Numeric Pain Rating Scale, after 12 weeks of treatment. However, suzetrigine only led to a statistically significant decrease in pain compared to a placebo. The difference between the two wasn't significant, leading to uncertainty about the drug's efficacy in treating LSR, a condition that affects millions of patients every year and could be a large, profitable market for Vertex. This uncertainty led to a 10% dip in Vertex's shares in a single day.
Embrace the long game
Vertex is still likely to run a phase 3 study for suzetrigine in LSR, but what if it doesn't succeed? Vertex has plenty of other projects in the pipeline. It recently received approval for its next-gen cystic fibrosis (CF) therapy, Alyftrek. Vertex has a monopoly in the CF drug market. Alyftrek, like its predecessor Trikafta, is just as effective despite its once-daily dosing.
Vertex's CF franchise continues to drive strong revenue growth. Third-quarter revenue increased by 12% to $2.77 billion. There's still a good chance suzetrigine will receive approval for acute pain next month. Vertex is also ramping up its gene-editing treatment, Casgevy, which targets two rare blood diseases. Although it has been approved in some markets for over a year, including the U.K., Casgevy won't significantly impact Vertex's financial results until later.
That's the nature of gene-editing treatments. However, the medicine has a massive, multibillion-dollar opportunity. Vertex also has phase 3 programs in APOL-1 mediated kidney disease and Iga nephropathy (a kidney disease). It has earlier-stage programs in type 1 diabetes, a particularly promising project for Vertex Pharmaceuticals. Vertex's VX-880 could be a functional cure for patients with this chronic condition and allow them to produce their own insulin, something that is typically impossible for people with type 1 diabetes.
In an ongoing phase 1/2 study, 12 patients treated with VX-880 showed reduced or complete elimination of the need for synthetic insulin. Three of them with over a year of follow-up also showed elimination of severe hypoglycemic events. There's still a long way to go before Vertex receives approval for VX-880, but the company has consistently demonstrated its innovative qualities. Although the phase 2 data for suzetrigine in LSR was a setback, it does little to change Vertex's long-term prospects.
What happened the last time Vertex's shares took a nose dive following a clinical setback? That was on Oct. 14, 2020, when it announced it was abandoning a phase 2 trial for VX-814, an investigational therapy for Alpha-1 antitrypsin deficiency. Since Oct. 15, 2020, Vertex's shares have outperformed the S&P 500, even considering its recent massive drop.
I expect the same thing to happen this time around. Patient investors will benefit from buying Vertex's biotech stock on the dip.
After the underwhelming results of Vertex Pharmaceuticals' phase 2 study for suzetrigine in LSR, causing a 10% decrease in its shares, now might be a prime opportunity for investors who are inclined towards long-term finance strategies to consider investing in this stock. Despite the temporary setback, Vertex's CF franchise continues to drive strong revenue growth and has a promising pipeline, including VX-880, a potential functional cure for type 1 diabetes, which has shown promising results in an ongoing phase 1/2 study.