Is This Beaten-Down Stock a Buy on the Dip?

Key Points

• Vertex faced some setbacks with two pipeline programs in acute and neuropathic pain.

• However, the company still has a path forward for both of those medicines.

• It has several other pipeline candidates and a lineup that generates consistent results.

• 10 stocks we like better than Vertex Pharmaceuticals ›

Even well-established drugmakers can lose significant market value overnight following a setback. That's what recently happened to Vertex Pharmaceuticals (NASDAQ: VRTX). The company's shares fell by more than 10% after it announced not-so-great regulatory and clinical developments.

Vertex's stock is down 4% year to date following this decline. Should you consider investing in the company's shares while they're down? Let's find out.

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Vertex's pain franchise faces another obstacle

Vertex Pharmaceuticals is targeting the pain treatment market as part of its efforts to diversify its lineup of medicines. In January, the company earned approval for Journavx, the first oral non-opioid pain signal inhibitor, for the treatment of moderate to severe acute pain.

Image source: Getty Images.

However, the drugmaker has encountered some headwinds in this niche. Journavx did not perform as well as expected in a phase 2 study in patients with painful lumbosacral radiculopathy. Vertex's shares plummeted in December following that data readout. And although the company initially stated it would pursue this indication for Journavx despite the unimpressive mid-stage data, it recently announced it was abandoning those plans based on feedback from regulators. That was one reason Vertex's shares fell hard.

Then there's VX-993, an investigational therapy for acute pain that just failed phase 2 studies. Vertex will not pursue VX-993 as a monotherapy in this indication. This is the second development responsible for the company's shares recently plummeting.

Why the stock is still attractive

Despite these clinical setbacks, Vertex's shares remain a worthwhile investment for long-term investors. Let's consider four reasons why.

First, the company's financial results remain strong. In the second quarter, revenue increased by 12% year over year to $2.96 billion. Vertex's cystic fibrosis (CF) business continues to perform well, and the recent addition of its next-gen CF medicine Alyftrek should help. Vertex is the only company that markets drugs for the underlying causes of CF, but many patients in the geographies it targets are still not benefiting from its therapies. So the company still has some headway in its core franchise.

Second, Vertex has successfully diversified its lineup in recent years. In addition to Journavx, the biotech earned approval for Casgevy, a gene-editing therapy for two rare blood disorders, in 2023. While these products aren't contributing much to financial results yet, they eventually will. Vertex noted that Journavx's launch is going well. It has secured third-party coverage for approximately 150 million Americans, which suggests there's a reasonable demand for the medicine.

Third, Vertex should still make some headway in the market for pain treatments. It's enrolling patients for phase 3 studies of Journavx in diabetic peripheral neuropathy, while VX-993 will also be tested in mid-stage clinical trials in this indication.

Fourth, the company has several other exciting pipeline candidates. One of them is zimislecel, an investigational therapy for type 1 diabetes (T1D) that's posting strong results in clinical trials and could become an approved functional cure for T1D. It helps restore patients' ability to produce their own insulin, something that is normally not possible with this chronic health condition. Vertex plans on submitting regulatory applications for it next year.

The late-stage pipeline also features inaxaplin, a potential treatment for APOL-1-mediated kidney disease, a condition for which there are no approved therapies that target the underlying causes.

Even well-established biotech companies like Vertex Pharmaceuticals face clinical setbacks that sink their stock prices. But in this case, given Vertex's strong lineup and pipeline and its consistent financial results, this seems like an excellent opportunity to purchase its shares on the dip.

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Prosper Junior Bakiny has positions in Vertex Pharmaceuticals. The Motley Fool has positions in and recommends Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.