Why you can make Vertex Pharmaceuticals a buy on any pullback

Key Points

• Vertex stock is off 52-week highs after a slight miss on revenue. 
• Analysts are also concerned about when the company's pipeline candidates will be accretive to the company's bottom line. 
• VRTX stock is a long-term buy candidate, but investors should wait for a better entry point or improved analyst sentiment.  

Shares of Vertex Pharmaceuticals, Inc. NASDAQ: VRTX are down nearly 2% after the company delivered its third-quarter earnings report. The news wasn't particularly bad, although there was a slight miss on the top line.  

But with VRTX stock up over 30% in 2023, it's fair to say that the stock was priced for perfection. A miss, no matter how small, is not the perfection that investors are looking for. However, this is creating a pullback that may be a buying opportunity.  

It's all about the pipeline 

Biotech stock investors understand that holding a long position requires understanding a company's pipeline. Consider a company like Pfizer, Inc. NYSE: PFE. The company was an outlier in 2021 due to the widespread adoption of its Covid-19 vaccine and Paxlovid therapeutic.  

Investors who bought shares of PFE stock on December 23, 2020, received quite a gift the following year, with the stock up approximately 56%. And the total return was even higher when you factor in Pfizer's dividend.  

However, in 2023, PFE stock is down over 39% as sales of its Covid products are normalizing. And while the company has a robust pipeline, it may be some time before those drugs are in the market to offset that loss. 

That brings us back to Vertex. One issue that seems to be troubling investors is no specific news regarding its late-stage, non-opioid pain drug VX-548. This is a substantial opportunity. Both the acute pain and peripheral neuropathic pain (PNP) markets are valued in the billions of dollars. Over 90 million patients are treated for one or both conditions in the United States every year.  

It goes without saying that the current treatment protocol, which consists of opioids, introduces concerns over side effects and addiction on the one hand and inconsistent effectiveness on the other. That's where the opportunity for VX-548 exists.  

However, Vertex said the delay in announcing results is due to procedural issues regarding the unblinding of the studies and not an indication that the results will be disappointing.   

Will gene editing save the day? 

Analysts are also tempering their enthusiasm for Exa-cel, another key treatment in Vertex's pipeline. This is Vertex's collaboration with CRISPR Therapeutics NASDAQ: CRSP. The two companies are using CRISPR's gene-editing technology, CRISPR/Cas9, as a potential one-time treatment for sickle cell disease.  

Vertex is seeking approval of Exa-cel for two separate indications. The good news is that the company now has PDUFA dates for Exa-cel. The latest is March 30, 2024. However, investors are concerned that sales of Exa-cel may take time to ramp up.  

Is VRTX a buying opportunity? 

The answer would seem to be yes, but not yet. VRTX stock is down from its 52-week (and all-time) high. But it's well above its 50- and 200-day simple moving average. And in the next quarter or two, the company may not generate enough earnings growth to support a forward P/E ratio of over 28x. 

The Vertex Pharmaceuticals analyst ratings on MarketBeat suggest that VRTX stock may be fairly priced. Some of the higher price targets indicate the stock could have an upside of about 6%. With that in mind, I would suggest that investors keep an eye on Vertex for now and look to buy the stock on either a meaningful pullback or a significant shift in analyst sentiment.