Understanding the recent fall in Vertex stock
Vertex Pharmaceuticals (VRTX) dominates the CF (cystic fibrosis) space with two approved drugs: Kalydeco and Orkambi. These two drugs were manufactured in association with Cystic Fibrosis Foundation Therapeutics. For details on Vertex’s growth prospects in the CF space, you can read Cystic Fibrosis Treatment Is a Space Where Vertex Could Thrive.
On September 28, 2016, Vertex lowered its 2016 revenue guidance for Orkambi, a key CF drug. This move was taken adversely by the market, and Vertex’s share price fell to $85 on September 29 from its earlier day’s closing price of $88.84. Since then, the fall has continued for VRTX, which was trading at $79.23 on October 14.
With strong fundamentals, although the valuation multiple was improving, VRTX stock fell, driven by investor sentiment. When a valuation multiple seems to be a lead indicator, any positive news from the pipeline will result in a rise in share price.
Significant fall in share prices for Vertex and its peers
Over the past year, VRTX stock has fallen 31.0%. Regeneron Pharmaceuticals (REGN) has fallen 28.0%. Alexion Pharmaceuticals (ALXN) noted a fall of 26.0%, and BioMarin Pharmaceutical (BMRN) has fallen 22.0% over the past year. So perhaps the entire biotechnology industry, and not just Vertex, has suffered during this period. The major biotechnology sector ETF, the iShares Nasdaq Biotechnology (IBB), fell 15.0% over the same one-year period.
Factors behind the fall
The political environment in the United States and Valeant Pharmaceuticals’ (VRX) “chilling effect” are some of the key macro factors that caused a fall for the industry. Then Vertex received some news:
- a complete response letter from the FDA (U.S. Food and Drug Administration) for Kalydeco in CF patients aged two years and above
- an earnings disappointment
- a failed VX-661 study
But in spite of these negatives, the fundamentals of the company remained intact, with long-term growth through multiple pipeline molecules and volume expansion. Data on the other three combination studies with VX-661 are expected by 1Q17. If the studies are successful, VRTX shares might rise.
Let’s have a look next at analysts’ expectations for Vertex’s revenue and margins in the upcoming period.