Vertex Keeps Focus on Cystic Fibrosis During Pandemic and It Pays Off

(Bloomberg) -- Vertex Pharmaceuticals Inc. has rallied to a string of record highs this month even amid a global pandemic that has whipsawed markets and forced money managers to seek shelter.

The $70 billion biotech giant has kept its head down, working to help patients with the genetic lung disorder known as cystic fibrosis, and not chasing a therapy for the novel coronavirus, unlike many of its peers.

“Vertex for me is the ultimate biotech safety-plus-quality name,” Jared Holz an equity trading strategist at Jefferies, said in an interview. “You have a drug that has to be taken, there’s a pipeline behind the core cystic fibrosis franchise, and there’s a management team that has paid investors to stay in the stock over the past five or so years.”

Boston-based Vertex is set to report quarterly results on Wednesday after the market close and Wall Street will have an eye on whether management bucks recent industry trends and maintains its forecast for 2020 revenue of $5.1 billion to $5.3 billion. Jefferies analyst Michael Yee warned that shares have run up a lot on the biotech’s “scarcity value,” but he advised clients to look past any potential first-quarter hiccups as there is “high visibility” into 2020.

Analysts say sales for Vertex’s new CF drug, Trikafta, should continue to flourish as patients look to take the most effective medicines amid the pandemic, which leaves those with lung issues like cystic fibrosis more at risk for severe complications.

‘An Outlier’

“In an environment where 2020 consensus numbers need to come down, Vertex is an outlier where we actually think they could still beat with limited impact of corona,” Brian Abrahams, an analyst at RBC Capital Markets, said in an interview. “If anything, coronavirus might even further incentivize patients with cystic fibrosis to go on the most optimal therapy to optimize their respiratory status.”

Vertex’s 23% advance this year, adding $13.7 billion in market value, trails only Regeneron Pharmaceuticals Inc. and Eli Lilly & Co. in the S&P 500 Health Care Index. Vertex’s strength comes amid a favorable industry backdrop as the Nasdaq Biotechnology Index is trading higher by 4.6% this year, compared with the S&P 500’s 12% decline.

Related: Vertex May Be Next Biotech to Enter $100 Billion Club, Citi Says

The company may be both a beneficiary of the industry’s recent strength and a driver for its outperformance, according to those that follow the space. “The overall rally we’re seeing is a net result of the view that biotech is a relatively defensive sector with optionality toward potential coronavirus treatments,” Abrahams said.

While the industry faces some hurdles like clinical trial delays and hampered drug launches, Abrahams sees Vertex as “one of the highest-quality large-cap growth biotechs out there,” with its core cystic fibrosis franchise and well-regarded drug pipeline. Generalist investors are also drawn to Vertex as a biotech bellwether that has an easy-to-understand story.

“Vertex, with its high-quality growth franchise, pipeline optionality and potential for commercial beats without a lot of perceived risk, put it toward or at the top of the list for many of those investors looking to put new money to work in the biotech space,” he said.

On Monday, the company announced a multiyear partnership with closely held Affinia Therapeutics tied to the company’s gene-therapy technology. The companies aim to develop genetic therapies for patients with Duchenne muscular dystrophy, myotonic dystrophy type 1 and CF, according to a statement.

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