Down 10%, Should You Buy the Dip on Vertex Pharmaceuticals?

Vertex Pharmaceuticals (NASDAQ: VRTX) has grown revenue and profit into the billions of dollars thanks to its expertise in the treatment of cystic fibrosis (CF). The company has developed a portfolio of drugs that has transformed the way the disease is treated -- and that's made Vertex the No. 1 player in the industry.

In recent years, the biotech has expanded into other treatment areas, even scoring regulatory approval for a gene editing therapy for blood disorders and a pain management drug. All of this has made Vertex a great stock to hold over time -- for example, it's climbed more than 40% over the past three years.

If you haven't yet gotten in on this growth story or aim to add to your current position, you may be on the lookout for buying opportunities. Now, with Vertex down 10% from a peak back in April, is it time to invest? Let's find out.

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Vertex's key growth driver

When looking at Vertex, it's important to consider its CF business as this has been the biotech's key growth driver. Vertex has developed CFTR modulators -- their role is to correct the faulty protein made by the CFTR gene. In most cases, the protein doesn't take the right shape; in others, the protein isn't even produced. This protein is needed to usher water and chloride in and out of cells, but when it's unable to do so, thick mucus builds up -- resulting in the symptoms of CF.

What makes the problem truly complex is that more than 2,000 mutations of the gene may result in this disease. But Vertex has tackled that, and its CFTR modulators can treat almost 95% of CF patients.

So far, the company's commercialized drugs have delivered billions of dollars in revenue. For example, in the latest quarter, Vertex's revenue soared 11% to more than $3 billion -- that's with net income of $1.1 billion on a GAAP basis. And the company predicts as much as $12 billion in revenue for the full year.

Casgevy's progress

Casgevy, the blood disorders treatment, requires time to deliver growth since the therapy involves several steps that take months to complete -- so, even though the product gained approval two years ago, we're just now starting to see the revenue potential. Vertex says Casgevy is on track to reach more than $100 million in revenue for the full year 2025 and significant growth next year.

Journavx, the non-opioid treatment for moderate-to-severe acute pain, looks promising too. Vertex said more than 300,000 prescriptions have been filled for the drug from March, when it became available, through mid-October, and the company continues to study it for additional pain indications. "We're in the early days of creating another multibillion-dollar franchise," chief operating officer Stuart Arbuckle said during the recent earnings call.

Meanwhile, Vertex's CF business continues to represent a huge growth driver for the company, with intellectual property protecting its innovations through the late part of the next decade. Vertex now is studying a candidate in phase 1/2 trials that may address the remaining 5% of CF patients who can't be helped by its current portfolio. And the company recently spoke of another candidate, VX-828, a next-generation CFTR corrector -- Vertex said it was the most efficacious candidate it's ever seen in vitro, and now it's brought the candidate into clinical studies.

Made in the U.S.A.

All of this is very positive, and another important point to keep in mind is that most of Vertex's CF manufacturing is done in the U.S., so the company isn't heavily vulnerable to any potential import tariffs.

So, what are the risks involved in investing in this player? The main risk, and this is something that applies to all biotech and pharma companies, is the possibility of disappointment or failure during clinical trials. And the other risk is the commercial performance of a particular drug once launched. Vertex must put significant investment and effort into rolling out a drug like Journavx to convince doctors and hospitals that it's the best option for their patients. This, too, is a challenge that other drugmakers face.

If you can accept those risks, though, Vertex makes a fantastic biotech stock to buy -- for its dominance in CF that should support ongoing growth as well as for its growth potential in other businesses, like pain management. And now, on the dip, trading for 24x forward earnings estimates, Vertex looks like a bargain.

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