Tuesday, June 24, 2014

I Buy Regeneron; Comment on Vertex Pharmaceuticals

Regeneron Pharmaceuticals (REGN) has been down a bit lately, on talk of greater substitution of Avastin for Eylea, and today I finally dug into my cash and bought a tiny amount at $277.74 per share. Regeneron has a high P/E ratio, and all the dangers that implies. However, I think long-term prospects are quite good, and I don't think it likely I will be able to buy REGN much cheaper. If it goes down further, I may buy more.

Vertex Pharmaceuticals (VRTX) was the big winner today, up over 40% to end at $93.53. The news was that a new drug for cystic fibrosis had marginally positive results that may be good enough to get an FDA approval. I would not approve the drug based on the results if I sat on an FDA panel, but I don't. I also would not pay for such marginal benefits, especially given the price tags Vertex wants for its therapies. I think it is great they are working to help cystic fibrosis patients, but as an investor I am skeptical.

$118 million was how much revenue Vertex had in Q1. EPS was negative $1.00. Vertex might run up $500 million in sales this year, and probably at least that in losses.

So how do you justify a market capitalization of $22 billion with those numbers? By having the biggest Wall Street companies sing sweet songs about the future value of the pipeline.

Again, nothing against the company, and as long as the big boys can keep selling the stock to new fools, it might keep going up. But don't say I did not warn you about the danger. I believe in the power of therapeutic pipelines, that is why I bought Regeneron today and have owned BIIB, CELG, GILD and others for years. But I have seen big collapses when biotechnology pipelines did not deliver what sell-side brokers and analysts promised to gullible investors.

Another thing, how come Gilead (GILD) has been a sell according to many of the same people who are pushing Vertex? The story is Gilead's Hepatitis C drug is too expensive. But Gilead is selling a cure to a deadly disease for 85 thousand. Vertex, according to the new study, will be selling a drug that averages just 4% increase in lung volume (almost too low to detect) for over $100,000 per year. Why not worry about insurance company resistance to that kind of pricing?

Again, Vertex is a good company, and I would invest in its future at a reasonable price. But not today's price of $93.53 per share, and not even yesterday's price of $66.61. Not on current sales, and not on the trial data.

For my coverage, including summaries of analyst conferences and articles at Seeking Alpha, check out:

Regeneron (REGN)
Vertex (VRTX)
Gilead (GILD)

In any case, be sure to ... Keep Diversified!

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