Why Argus Upgraded Vertex Pharma To Buy Last Week

• Vertex Pharmaceuticals Incorporated VRTX shares are down 17 percent year-to-date, despite crossing the $140 mark twice in August.
• Argus’ Johan Eade upgraded the rating on the company to Buy, while maintaining a price target of $126.
• Eade highlighted a better stock valuation and the company’s transparent earnings outlook.

Vertex Pharmaceuticals is engaged in discovering, developing and commercializing innovative therapies with a primary focus on cystic fibrosis, rheumatoid arthritis and epilepsy. The 16 percent decline in the company’s shares over the last few days has brought the company’s price/sales ratio at the low-end of the industry average, analyst Johan Eade mentioned.

Eade attributes the recent decline in the company’s share price to valuation concerns and investor worries about potential government pricing regulations.

Positive results from multiple phase III trials of new cystic fibrosis drugs, including Vertex Pharmaceuticals’ Orkambi, recently approved by the FDA, have made the company’s earnings outlook more transparent over the past year.

Eade believes that the company’s earnings potential is strong due to the absence of any competition for its cystic fibrosis product with pricing and reimbursement issues posing the real risk.

Eade expects Orkambi’s launch to make the company profitable in the second half of this year. Vertex Pharmaceuticals had posted a non-GAAP loss of $1.16 per share in the first half of 2015.

The company’s 2016 earnings will depend on the uptake of Orkambi and its future growth will depend on its pipeline products VX-509, for rheumatoid arthritis, and VX-787, for influenza A, currently in phase II clinical trials, the Argus report stated.