Why Vertex Pharmaceuticals Stock Is a Screaming Buy on the Dip

Vertex Pharmaceuticals' (NASDAQ: VRTX) remarkable momentum came to a screeching halt this week. The big biotech stock had been up well over 20% year to date. However, Vertex's shares plunged after the company announced its first-quarter results on Monday.

Should investors throw in the towel on Vertex? I don't think so. Instead, the sell-off presents a fantastic opportunity to double up on this big biotech innovator.

Dissecting Vertex's bad news

The main bad news with Vertex's Q1 results was that the company missed Wall Street's revenue and earnings estimates. Vertex reported Q1 revenue of $2.77 billion, up 3% year over year. Analysts were expecting revenue of $2.83 billion. The drugmaker posted adjusted earnings per share of $4.06, below the consensus estimate of $4.29.

Vertex also announced that it's temporarily pausing the multiple ascending dose portion of its phase 1/2 study evaluating messenger RNA (mRNA) therapy VX-522 in treating cystic fibrosis (CF). The company said the pause was needed "to assess a tolerability issue."

Blame Russia for the weaker-than-expected financial results. Vertex noted that illegal copycat versions of its products in the country are negatively impacting sales. However, the company believes the problem is isolated to Russia.

Importantly, Vertex increased the lower end of its full-year revenue guidance range, despite the intellectual property (IP) rights issues in Russia. The company now looks for 2025 revenue of between $11.85 billion and $12 billion. The lower end of its guidance range was previously $11.75 billion.

As for the potential tolerability issue with VX-522, Vertex's management wouldn't provide any details because it's an active program. However, it's too soon to assume the worst. Even if there's more bad news, though, I don't think a setback with VX-522 changes the overall investment thesis for Vertex.

A lot of good news, too

Anytime a company misses Wall Street's quarterly estimates, it's tempting to focus only on the negatives. But smart investors know that they shouldn't overlook the positives. The reality is that Vertex had a lot of good news in its Q1 update, too.

I'm going to start with the company's newest CF therapy, Alyftrek. Vertex CEO Reshma Kewalramani said in the Q1 earnings call that management is "pleased with the early launch dynamics and physician and patient feedback" for the drug. The company expects most U.S. patients who are on its other CF drugs will switch to Alyftrek over time. This cannibalization of existing products should be good for Vertex, though, because Alyftrek's royalty payments are lower than those of the company's other CF therapies.

Vertex also picked up a positive Committee for Medicinal Products for Human Use (CHMP) opinion for Alyftrek. As a result, it's looking for European Commission approval for the drug in the second half of 2025. The company also hopes to win approvals in Australia, Canada, and Switzerland.

Image source: Getty Images.

I'm even more excited about the prospects for Vertex's new non-opioid pain drug Journavx. Investors shouldn't be disappointed that there was only "an insignificant amount" of sales from the drug in Q1.

Journavx has only been available at retailers since mid-March. The reaction from payers, physicians, and pharmacies has been positive. Vertex expects volume to ramp up in the first half of the year, with revenue accelerating in the second half.

Vertex also reported encouraging news about its pipeline programs. Kewelramani said the company should be in a position to file for regulatory approvals of zimislecel in treating severe Type 1 diabetes next year pending positive results from a pivotal study that's underway. She also noted that Vertex could file for U.S. accelerated approval of povetacicept in treating IgA nephropathy in the first half of 2026, assuming a positive interim analysis of data from the phase 3 Ranier trial.

CFO Charlie Wagner confirmed Vertex's status as a safe haven from tariffs in the Q1 earnings call. He said:

We expect an immaterial cost impact from tariffs based on what we know today due to our low exposure to China and a geographically diverse supply chain. The vast majority of our drug product manufacturing for CF is in the United States and most of our IP is concentrated in the U.S. and the U.K.

Not just a buy, a screaming buy

Sometimes, a revenue and earnings miss is a sign of deeper problems for a company. I don't think that's the case whatsoever with Vertex Pharmaceuticals.

This big biotech stock should easily generate exceptional returns over the next few years. Increased adoption of Alyftrek should boost profits, and Journavx is destined to become a huge blockbuster.

Vertex's pipeline is poised to produce other big winners. I don't just think Vertex is a stock to buy on the dip -- I think it's a screaming buy.

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Keith Speights has positions in Vertex Pharmaceuticals. The Motley Fool has positions in and recommends Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.