TipRanks

Notifications

Vertex or Galapagos: Which Biotech Stock Does The Street Favor?

The COVID-19 pandemic had a mixed impact on pharma companies so far. During nationwide lockdowns, some companies benefited from the stockpiling of certain drugs. While others lost out as a result of the postponement of elective procedures, reduced patient visits to physicians and a sales decline of certain vaccines and drugs. All this had an adverse impact on the top line of several pharma companies.

There are many pharma and biotech firms that are not involved in the race of developing a COVID-19 treatment but are making considerable progress in several therapeutic areas. We will use TipRanks’ Stock Comparison tool to place Vertex Pharmaceuticals and Galapagos alongside each other to see which biotech stock has a more compelling investment story.  

Vertex Pharmaceuticals (VRTX)

Vertex is considered the leader in the treatment of cystic fibrosis, a genetic disease that can severely affect lungs, pancreas and other organs. Vertex already had a strong presence in the cystic fibrosis space with its three drugs Kalydeco, Orkambi and Symdeko. But, the FDA approval of triple combo therapy Trikafta in Oct. 2019, 5 months ahead of schedule, immensely strengthened Vertex’s position in the cystic fibrosis market.

In the first six months of 2020, Trikafta contributed $1.81 million to the company’s revenue offsetting the 49%, 24% and 18% sales declines from Symdeko/Symkevi, Orkambi and Kalydeco, respectively. The revenue drop from other products reflected the shift from these medicines to Trikafta in the US market.   

Notably, Vertex’s 2Q total revenue grew 62% Y/Y to $1.52 billion, of which Trifakta contributed $918 million. Strong top-line growth drove a 107% rise in 2Q adjusted EPS to $2.61. Backed by the robust 2Q growth, Vertex raised its full-year guidance to the range of $5.7 billion to $5.9 billion compared to the prior forecast of $5.3 billion to $5.6 billion.

On Sept. 25, the FDA approved Kalydeco for use in children with cystic fibrosis (CF) aged 4 months to less than 6 months old who have at least one mutation in their cystic fibrosis transmembrane conductance regulator (CFTR) gene. Kalydeco is already approved in the US and EU for the treatment of CF in patients aged six months and older.   

On Sept. 16, Vertex announced its second collaboration with Moderna aimed at the discovery and development of lipid nanoparticles (LNPs) and mRNAs (messenger RNAs) for the delivery of gene-editing therapies for the treatment of CF.

Beyond CF, Vertex’s pipeline also includes clinical programs for the treatment of other diseases like alpha-1 antitrypsin deficiency and APOL1-mediated kidney diseases. Vertex is also expanding its pipeline of genetic and cell therapies for diseases such as sickle cell disease, beta thalassemia, Duchenne muscular dystrophy and type 1 diabetes mellitus.

Following the Vertex-Moderna deal, Maxim Group analyst Jason McCarthy commented, “Vertex has development experience in gene-based therapies from its partnership with CRISPR Therapeutics (CRSP – NR) and acquisition of Exonics Therapeutics, while Moderna is an industry leader in mRNA-based therapies. As these programs are still early stage, we do not factor potential revenue in our model.”

“Focus remains on the CF commercial franchise, and we still expect continued domination in the CF space by Vertex” added the analyst. He kept his Hold rating unchanged based on valuation. (See VRTX stock analysis on TipRanks)

Vertex stock has risen 22.5% so far this year. The average analyst price target of $311.27 implies additional 16% upside potential in the coming 12 months. Overall, the Street has a cautiously optimistic Moderate Buy consensus for Vertex based on 13 Buys, 5 Holds and no Sell ratings.

Galapagos (GLPG)

Galapagos discovers and develops small molecule medicines with novel modes of action, 3 of which are currently in late-stage development in multiple diseases. The company’s pipeline comprises discovery through Phase 3 programs in inflammation, fibrosis, osteoarthritis and other indications.

Last year, Galapagos closed a deal with Gilead Sciences. As part of the deal, Gilead made a $3.95 billion upfront payment and $1.1 billion in equity investments to get access to Galapagos’ drug discovery platform and current and future pipeline outside of Europe. Gilead first teamed up with Galapagos for the development of Filgotinib in 2015.

Galapagos’ revenue grew 107% to 224.6 million euros in the first half of 2020, reflecting the favorable impact of the Gilead collaboration, which contributed 187.7 million euros to the topline. EPS grew 45% Y/Y to 2.55 euros per share during the same period.

Galapagos and Gilead faced a significant setback in August when the FDA expressed concerns over the risk-benefit profile of the rheumatoid arthritis treatment Filgotinib, which is the company’s lead drug. In reaction to the FDA’s concern Galapagos stock plunged 25% on Aug. 19. Gilead received a complete response letter (CRL) from the FDA for the new drug application for filgotinib. Gilead is the market authorization holder for filgotinib in the US and is responsible for its potential US commercialization.

On Sept. 25, Galapagos announced that the European Commission (EC) has granted marketing authorization for Jyseleca (filgotinib) for the treatment of adults with moderate to severe rheumatoid arthritis. On the same day, the company also announced that Jyseleca (filgotinib) was approved in Japan for rheumatoid arthritis.

In reaction to the Sept. 25 updates, Stifel Nicolaus analyst Derek Archila reiterated a Hold rating for Galapagos with a price target of $155. The analyst said although the developments are a “modest positive”, they are more or less priced in the shares.

Archila sees the resolution of the CRL letter as the next major catalyst for Galapagos. In addition, he expects the EU launch for Jyseleca to be fairly slow as the commercial infrastructure needs to be built and the company has to negotiate reimbursement on a country-by-country basis. He also expressed concerns about competition in the EU from heavyweights like AbbVie, Pfizer and Eli Lilly. (See GLPG stock analysis on TipRanks)

The rest of the Street is sidelined on the stock with a Hold analyst consensus based on 9 Holds, 1 Sell, and 2 Buys. With shares down about 33% year-to-date, the average analyst price target of $161.54 reflects upside potential of 16% over the coming year.

Conclusion

Vertex Pharmaceutical’s dominance in the cystic fibrosis space and the potential for its CF treatment in international markets make it an attractive stock. Moreover, even after outperforming Galapagos significantly year-to-date, Vertex stock still offers additional upside potential for investors over the coming year.

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment

Leave a Reply

Your email address will not be published. Required fields are marked *

Leave a Reply

Your email address will not be published. Required fields are marked *