Which is the better buy: Vertex or Invitae?

Vertex Pharmaceuticals (VRTX -1.17%) Y Invite (NVTA 0.96%) They have gone in different directions this year when it comes to share price, with Vertex shares up more than 43% so far and Invitae shares down more than 84%.

looking at these two biotechnology stocks from a long-term perspective, is Invitae now the best buy? Or is Vertex’s strong run this year likely to extend into 2023?

The case of Vertex Pharmaceuticals

Vertex Pharmaceuticals has had a record year in income, thanks to its cystic fibrosis (CF) treatments. The biotech company specializes in small molecule therapies to treat CF, as well as a host of other diseases.

Vertex shares are up more than 43% this year. That’s largely due to improving finances and a project with great potential, including VX-880, a diabetes therapy in early trials that could allow patients to make their own insulin. The company also has a potential blockbuster in exa-cel, which has shown promise in late-stage trials to cure two rare transfusion-dependent blood disorders, sickle cell disease (SCD) and transfusion-dependent beta-thalassemia. transfusions (TDT). The company is in the process of filing approvals for exa-cel in Europe and the United States and could get the green light for the therapy as early as next year.

In the third quarter, Vertex reported revenue of $2.33 billion, up 18% year-over-year, and raised annual revenue estimates to $8.8-$8.9 billion, which at the midpoint would represent a 15% increase over 2021 The company has increased annual revenue by 525% in the last 10 years. Biotech also reported net income of $930.5 million and earnings per share (EPS) of $3.59, up 9.2% and 9.4%, respectively, over the same period in 2021. Most of the revenue comes from the company’s CF franchise drugs Trikafta and Symdeko, so the potential to add those two is what investors are excited about.

NVTA Power Ratio data by YGraphics

The Invitae Corporation case

Invitae is a medical genetics company specializing in heritable disease testing and diagnostics in cancer, cardiology, neurology, rare diseases and pediatric care. Its shares are down 84% this year and the company has a long way to go to be profitable.

In the third quarter, Invitae reported revenue of $133.5 million, up 16.7% year-over-year, along with a net loss of $301.2 million, or a loss per share of $1.27. The company has also steadily increased its revenue, increasing annual revenue by 574.9% over the past five years. The concern is that he only has $596 million in cash and cash equivalents, so he can’t afford to keep losing money for long.

Invitae said it plans to cut $326 million in spending by reducing its workforce, exiting less profitable business ventures and focusing on fewer than a dozen countries, up from more than 100 before.

The positive news is that the company’s products have a huge market that they can target that is underserved, according to Invitae. A report, by Data Bridge Market Research, puts the compound annual growth rate of medical genetic testing at 15.3% between 2022 and 2029, with the market reaching $44.89 billion by then.

Based on Invitae’s low price-to-sales ratio and forward price-to-sales ratio (1,113 and 1,159, respectively), the business is undervalued. The question is whether the company really cuts costs to make the actions less risky.

Make a solid long-term decision

To me, while Invitae may be a better offer right now, there is too much risk in the stock compared to Vertex’s strong growth profile. The latter company has already grown annual EPS by 766.3% over the past five years, and while some of exa-cel’s potential is priced in, the rest of the company’s thriving portfolio is not. is.

Invitae, on the other hand, has a plan to cut costs. However, even if that succeeds, the company doesn’t have as much of a moat as other rivals like exact Sciences Y glowing geneticswhich are also in the medical genetic testing space and have larger market capitalizations.