Vertex (VRTX) Seen as Top Large-Cap Biotech Growth Idea at RBC

RBC Capital maintained an Outperform rating on Vertex (NASDAQ: VRTX) with a price target of $145. Analyst Michael J. Yee called the stock a top large-cap growth idea within biotech. He also touched on rumors about a takeover by Johnson & Johnson (NYSE: JNJ) or AbbVie (NYSE: ABBV).

"Although the biopharma sector remains volatile for a number of reasons and during earnings season, Vertex remains a top large-cap growth idea within biotech given: (1) scarcity value as one of the only big earnings growth stories while many of its big biotech peers have decelerated or slowed or have more limited visibility; (2) strong Orkambi launch and possible upside to consensus; in fact, consensus Q3 Orkambi is now $90M, which seems reasonable and makes it easier to own the stock; (3) huge pipeline upside potential: at $100–115, the stock doesn't fully price in homozygous Orkambi (base biz worth $125+) and thus if heterozygous works from its pipeline of two correctors (VX-152 and VX-440), then the stock could see $2B+ of upside to consensus peak $5B and drive $12– 14+ EPS power, implying stock could be $175+/share and we'll get that Phase II data by YE:16 or early '17; (5) takeout play is reasonable in 2016+ and we think there are big biopharma players that could consider VRTX as an accretive and blockbuster franchise that can move the needle," said Yee.

Discussing takeover rumors, Yee said, "Our conversations with investors suggests that many believe JNJ (covered by Glenn Novarro) could be one possible acquirer as it actively pursues assets that could accelerate growth; it didn't buy PCYC at $21B earlier this year and ABBV did; public comments suggests that JNJ is not wedded to its AAA debt rating and is willing to do a larger deal than historical (see RBC JNJ note 10/22). ABBV remains another possibility later given consensus need to fill erosion from Humira biosimilar risk and recent addition of senior M&A expert to management team."

For an analyst ratings summary and ratings history on Vertex click here. For more ratings news on Vertex click here.

Shares of Vertex closed at $109.49 yesterday.

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