This Magnificent S&P 500 Dividend Stock Is Down 18% -- Time to Buy?

Key Points

• Vertex Pharmaceuticals has faced clinical trial disappointments, and illegal competition for some medicines.

• Despite these roadblocks, its financial results remain solid.

• The biotech's pipeline should also yield more key approvals.

• 10 stocks we like better than Vertex Pharmaceuticals ›

Vertex Pharmaceuticals (NASDAQ: VRTX) is usually a market-beater, but it hasn't been so over the past year. The company's shares are down 18% over the trailing-12-month period due to a combination of headwinds.

While that's not the best news for current shareholders, it may be great for those considering buying the stock. If the biotech can recover and get back to its market-beating ways, now might be a great time to initiate a position. Let's figure out whether Vertex still has what it takes.

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What's gone wrong?

Vertex Pharmaceuticals faced several clinical setbacks over the past year. First, its drug suzetrigine (now marketed under the brand Journavx) disappointed in a phase 2 clinical trial for painful lumbosacral radiculopathy. While Vertex initially said it would explore ways to advance the medicine to phase 3 studies in this indication anyway, it eventually abandoned that project.

Second, the company's candidate VX-993 also failed in phase 2 studies as an investigational monotherapy for acute pain.

Image source: Getty Images.

Third, Vertex abandoned one of its candidates for type 1 diabetes (T1D), VX-264, after another failure in early-stage trials.

In addition to these unfavorable developments from the clinic, financial results in the first quarter were not as strong as expected. This was partly due to illegal knockoffs of some of the company's medicines in Russia, which resulted in a loss of market share. For all these reasons, Vertex Pharmaceuticals has experienced several significant one-day price drops over the trailing-12-month period.

Why the stock is still attractive

Despite all the noise, Vertex's financial results remain strong. In the second quarter, revenue increased by 12% year over year to $2.96 billion. Net income was $1 billion, versus a net loss of $3.6 billion in the second quarter of 2024 (although that loss was a one-off due to expenses related to an acquisition).

Vertex Pharmaceuticals' newest launches include Alyftrek, in its core therapeutic area of cystic fibrosis (CF); Journavx, in the treatment of acute pain; and Casgevy, which treats two rare blood disorders.

Alyftrek, which earned approval in December, is already making meaningful contributions. It racked up $156.8 million in revenue during the quarter. It should maintain a solid upward trajectory for a long time, as Vertex Pharmaceuticals makes headway within the remainder of its CF addressable market.

Journavx should also see significant traction in the coming quarters. It became the first oral non-opioid pain signal inhibitor approved by the U.S. Food and Drug Administration. In the U.S., more than 150 million patients are already covered for reimbursement for the medicine.

Casgevy is a different story. It's a gene-editing therapy that's complex to administer, so since its approval in 2023, it's generated little in sales for Vertex Pharmaceuticals. However, even this product boasts significant potential, being a one-time cure for diseases for which there are very few safe treatment options.

Revenue and earnings should continue moving in the right direction in the next five years. But what about Vertex's clinical setbacks? Every biotech company experiences some. It's part of the process.

Developing novel medicines is inherently risky and expensive. But even in that department, Vertex should make progress. It's testing suzetrigine in phase 3 studies for diabetic peripheral neuropathy, while also conducting a phase 2 trial for VX-993 in that indication. And the late-stage pipeline features another medicine for T1D, zimislecel. Based on strong data from ongoing studies, the biotech plans 2026 regulatory submissions.

It has other promising compounds in phase 3 studies, including inaxaplin in APOL-1-mediated kidney disease and povetacicept in IgA nephropathy. There's a good chance that in the next five years, Vertex Pharmaceuticals will add two brand-new medicines to its lineup, while gaining an additional indication for Journavx, which could become a blockbuster.

In the meantime, early-stage programs for pain, CF, and other diseases should also make progress. In short, with a robust pipeline and its lineup still driving top-line growth, Vertex Pharmaceuticals' shares remain attractive, despite its underperformance over the past year. Now is a great time to buy the stock.

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Prosper Junior Bakiny has positions in Vertex Pharmaceuticals. The Motley Fool has positions in and recommends Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.