(At Least) One New Reason to Buy Vertex Pharmaceuticals Shares

This year, the biotech sector continues to be riddled with acquisitions. on April 10th, theVertexfirms(NASDAQ: VRTX)Announces $4.9 Billion Cash Offer forAlpine Immunologyfirms(NASDAQ: ALPN)Vertex's valuable asset in this acquisition is ALPN-303, a potential autoimmune therapy currently in Phase II clinical trials.

But the potential value of this deal to Vertex goes far beyond the acquisition of this drug candidate. Let's take a longer-term look at why this is such a big gain to understand more about this issue.

A gift that keeps on giving

ALPN-303 is being developed for the treatment of IgA nephropathy (IgAN), a rare autoimmune disease of the kidneys for which there is currently no approved treatment at all. It is estimated that about 4,200 people in the U.S. develop IgAN each year, but the exact number is unknown because it can take a long time for symptoms to become apparent. Currently, about 125,000 people in the United States have the disease.

The acquisition of ALPN-303 fits well with advancing Vertex's strategic focus on rare diseases. All of the company's commercialized medicines treat diseases with relatively small patient populations, such as cystic fibrosis (CF), beta-thalassemia and sickle cell disease, and much of its product line is dedicated to developing medicines to treat similarly rare diseases.

In addition, it is in line with management's long-term goal of continuing to offer a diverse range of products outside of the traditional market of cystic fibrosis treatment. As such, this is a very bullish move from the perspective of assessing how this acquisition will help shareholders, and a reason to buy more shares, as it demonstrates that management intends to continue to execute its core business model successfully and ambitiously.

By the end of this year, Alpine's program will be in late-stage clinical trials, and if all goes according to plan, it could be ready for sale in a few years. However, the therapeutic applications of the povetacicept molecule, the active ingredient in ALPN-303, are likely to extend well beyond IgAN, which is why it's worth buying the company's stock for other reasons.

According to Alpine researchers, povtacicept has the potential to treat three types of glomerulonephritis other than IgAN, as well as herpes, lupus, agonitis, three different autoimmune cytopenias, myasthenia gravis, several other neurological autoimmune diseases, and autoimmune hemolytic anemia. If you've never heard of these diseases, don't be afraid.

The crux of the matter is that each of these diseases has the potential to eventually expand the addressable market for the molecule, either through more clinical trials or more research and development. That's why Alpine's leadership has dubbed the molecule "Bubbles in a Box. There are so many candidates to explore that investing in other drug candidates shouldn't be necessary. And now Vertex, with its vast resources, has it all.

Risks are manageable

It is likely that Vertex will not be able to successfully commercialize new products for all possible indications that could theoretically be treated with povetacicept. Many of the potential indications are rare autoimmune diseases for which it may be difficult to develop safe and effective treatments. Even so, shareholders need not worry that they are taking on more risk than they signed up for, and here's why.

In the most recent quarter, Vertex had $11.2 billion in cash, equivalents and short-term investments on hand. Upon completion of the acquisition, Alpine should have approximately $6.6 billion when including its current ownership of $327.4 million in cash and equivalents. In other words, it still has enough capital to invest in pursuing other growth opportunities, so the acquisition does not reduce its capitalization at all.

In addition, Vertex's free cash flow (FCF) for the past 12 months has been nearly $3.3 billion. With this kind of cash flow, it is likely that it will soon be able to recoup the money it invested in acquiring Alpine. So if you're looking for signs that the business is worth buying, you now have more signs than ever before.

Should you invest $1,000 in Vertex Pharmaceuticals now?

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Alex Carchidi does not hold any of the above stocks.The Motley Fool holds a recommendation for Vertex Pharmaceuticals.The Motley Fool has a disclosure policy.

(At Least) One New Reason to Buy Vertex Pharmaceuticals Stock was originally published by The Motley Fool.