Investing in biotech stocks can be quite risky, with the potential for clinical failures, regulatory setbacks and new competitors. But for risk-tolerant long-term investors, Vertex Pharmaceuticals (Nasdaq: VRTX) is worth a look.
The company currently dominates the cystic fibrosisk, or CF, market with its three approved drugs – Kalydeco, Orkambi and Symdeko. Those drugs allow Vertex to treat about 39,000 patients.
Meanwhile, Vertex is hoping to earn U.S. Food and Drug Administration approval in March for its VX-445 triple-drug combination, which should expand the addressable CF patient population to 68,000. That would leave only 10% of CF patients without a treatment but Vertex is partnering with CRISPR Therapeutics on gene-editing therapies to help those patients, too.
Vertex is also hoping to move into treating other diseases, with experimental drugs in development targeting rare genetic diseases such as alpha-1 antitrypsin deficiency, or AATD, beta-thalassemia, Duchenne muscular dystrophy and sickle cell disease.
In addition, Vertex recently spent $950 million to acquire Semma Therapeutics in the hope of scoring what would be its greatest achievement of all – curing Type 1 diabetes. (The Motley Fool has recommended Vertex Pharmaceuticals.)
Ask the Fool
Q: When lots of investors sell a stock, its price drops. I get that. But who is buying all those shares? – P.L., Santa Barbara, California
A: There’s generally a buyer for every share that’s sold. You can think of the stock market as an auction, where stocks trade at prices that buyers are willing to pay and sellers are willing to take.
So if the Free Range Onion Company (Ticker: BULBZ) is implicated in an accounting scandal, many investors might decide to sell, but many buyers, thinking the stock is now worth a lot less, may only buy at that much lower price. A company may be facing terrible troubles, but at some point, its shares will be low enough that some investors think they’re a bargain.
Q: I bought some shares of Rite Aid a few years ago for around $100 each. They’re now trading below $10 per share. I don’t want to sell them for such a loss. Will the stock ever recover? – F.E., Springfield, Missouri
A: Try not to think about your purchase price, how much you’ve lost or how the stock has behaved in the past. What matters most in this situation is what you expect of the stock from this point on.
Rite Aid has been struggling for years, and its future is uncertain. If you think it will rebound significantly, hang on to your shares. If you think it will grow in value slowly, you might sell and invest in a company that’s growing more quickly. If you think it will stagnate or fall further, it’s smart to sell – and move the proceeds into a stock you do believe in. You should be invested in only your best ideas.
My dumbest investment
My dumbest investment has been the money I’ve spent in casinos. – V.H., online
The Fool responds: You’re not alone. Millions of people spend billions of dollars gambling every year, and though some do win money, on average, gamblers lose.
Think of Las Vegas, with its millions of lights. All that glitz costs a lot of money, and it’s mostly paid for by gamblers. In 2018, commercial casino gambling revenue hit a record level of $41.7 billion, representing a lot of dollars from a lot of gamblers’ pockets.
It helps to understand the concept of the “house edge,” which is the percentage of an initial bet that you’re likely to lose in a particular game. (Note that the “gambler’s edge” isn’t a thing – because casinos are designed to make money, not lose it.)
Blackjack offers some of the best odds of winning at a casino, with a house edge of less than 1%, but it still favors the casino. Roulette’s house edge is around 5%, meaning that on average, gamblers forfeit $5 out of every $100 gambled. Slot machines offer particularly bad odds – on average, they keep around 5% to 10% of gamblers’ money.
Gambling at casinos is like investing (or saving) in reverse. When you invest (or earn interest), your $100 can become $105, then grow to $110, $125 and so on. With casino gambling, your $100 is likely to keep shrinking instead of growing.
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