Vertex Pharmaceuticals: Filling in the Gap

Shares of Vertex Pharmaceuticals (VRTX) are in free-fall today following yesterday’s earnings-related plunge.

This time its a downgrade that’s driving Vertex’s stock lower as Bernstein analyst Geoffrey Porges and team cut its shares to Marketperform from Outperform. They explain why:

Our downgrade is based on the stock’s strong performance over the last nine months (+65%), the high value now accorded to the future expansion in their cystic fibrosis treatment revenue, our caution about the risks associated with the company’s ongoing phase III trials of Vx809 and Kalydeco, and the decreasing probability of any meaningful revenue from their remaining HCV asset, Vx135. While critics will suggest that our downgrade is a timing and valuation one, it seems unreasonable for us to encourage investors to ride out the stock’s volatility, and uncertainty, for programs and results that we expect to only show their full potential in 2015 or 2016, rather than 2014. We believe the stock is fairly valued in the mid $70′s, given the current stage and uncertainty about Vx809. We expect the stock to offer more upside after the company formally transitions their attention from Vx809 to its successor Vx661, and to the three drug combinations containing an additional corrector compound for the large number of patients with the commonest form of the disease. The recently announced restructuring was largely inevitable and probably falls short of many investors’ hoped-for cuts in expenses.

Vertex had surged 62% back on April 19, when it announced trial results for one of its drugs. Now it looks like it’ll try to “fill in the gap”–or trading in the range missed by a big jump (This article on gap trading is a bit dated, but notes that the bigger the gap, the less likely a stock will continue heading in that direction.)

Vertex has dropped 6.1% to $66.97 today at 2:24 p.m. but it’s fall doesn’t seem to be having an impact on other biotech companies. Incyte (INCY) gained 2% to $39.77, Acorda Therapeutics (ACOR) has gained 0.7% to $30.83 and Regeneron Pharmaceuticals (REGN) has dropped 0.6% to $285.96.