Vertex Pharmaceuticals May Be About to Solve a Common Health Problem. Is the Stock a Buy?

Vertex Pharmaceuticals (NASDAQ: VRTX) already brings in billions of dollars annually, thanks to its cystic fibrosis (CF) drugs. The company recently proved it could expand beyond the specialty area when it won approval with partner CRISPR Therapeutics for a gene editing therapy for blood disorders.

Next, Vertex is about to show that it can conquer one of the world’s most common health problems: pain. The company recently reported positive phase 3 data for VX-548, its treatment candidate for moderate-to-severe acute pain, and aims to request regulatory approval by the middle of this year.

At this exciting time, is Vertex stock a buy?

Image source: Getty Images.

The pain management opportunity

First, let’s talk a bit about the pain management opportunity. Today, at home or in a hospital setting, there are a limited number of options available. You can get over-the-counter drugs or prescription opioid painkillers. The former are often lacking in efficacy or associated with side effects like liver toxicity in the case of acetaminophen. And the latter have been linked to addiction, so doctors are more and more hesitant to prescribe them, and patients are more and more hesitant to take them.

Pain has consistently been the No. 1 reason for emergency department visits over the past six years, according to the National Hospital Ambulatory Medical Care Survey. And more than 20% of adults worldwide suffer from pain, estimates show. In the U.S., about 80 million people are prescribed a drug for moderate-to-severe acute pain every year, according to Vertex. So this clearly is an area of need.

Vertex’s VX-548 is a non-opioid painkiller that blocks the activity of NaV1.8, a sodium channel that plays a key role in pain signaling. In the recent pivotal studies, VX-548 met its primary endpoint, or goal, of a statistically significant reduction in pain, compared to placebo, and a meaningful reduction in pain, compared to baseline levels. These studies involved patients who had abdominoplasty (tummy tuck) or bunion surgery.

Trials didn’t meet the secondary endpoint of showing superiority to a combination of opioid hydrocodone bitartrate — the most commonly used acute and chronic pain drug in the U.S. — and acetaminophen. Still, this may not impact eventual sales prospects for VX-548 if it’s approved.

Helped by the No Pain Act

As mentioned above, patients and physicians, understanding the risk of opioid addiction, may opt for a non-opioid if it works just as well. Second, recent legislation supports the idea of prescribing more non-opioids. The No Pain Act directs the Centers for Medicare & Medicaid Services to offer healthcare facilities separate reimbursements for all non-opioids prescribed for pain. This would encourage hospitals and outpatient surgery centers to favor the prescription of non-opioids.

Analysts predict Vertex’s eventual pain drug could bring in as much as $5 billion in annual sales, clearly making it a blockbuster. The company’s regulatory request, based on the recent data, will seek a broad label in moderate-to-severe acute pain.

A current phase 2 study is building data for VX-548 in peripheral neuropathic pain, or nerve pain. And Vertex is also is working on other earlier-stage candidates with the same mechanism to address the problem of pain. So VX-548 represents a key growth area for the company.

Now let’s get back to our question: Is Vertex a buy?

The company’s shares have climbed more than 30% over the past year as investors cheered Vertex’s expansion into new areas. In spite of these gains and the fact that the stock is trading near a record high, Vertex still trades for only 25x forward earnings estimates. This looks incredibly reasonable for a company generating billions of dollars in earnings from its main business — CF drugs — and successfully expanding into new areas that could add billions of dollars to revenue.

As Vertex brings its candidate to solve a common health problem closer to the finish line, the stock makes a fantastic buy.

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Adria Cimino has positions in Vertex Pharmaceuticals. The Motley Fool has positions in and recommends CRISPR Therapeutics and Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.

Vertex Pharmaceuticals May Be About to Solve a Common Health Problem. Is the Stock a Buy? was originally published by The Motley Fool