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Motley Fool: Biotech promise

Research scientist Tony Huang works in a laboratory at Vertex Pharmaceuticals Inc. in San Diego in March 2015.  (Associated Press)
Research scientist Tony Huang works in a laboratory at Vertex Pharmaceuticals Inc. in San Diego in March 2015. (Associated Press)

Vertex Pharmaceuticals (Nasdaq: VRTX) is a major biotech enterprise, with $7.6 billion in revenue last year, led by its blockbuster Trikafta. Vertex already commands a monopoly in treating the underlying cause of cystic fibrosis, or CF, and it has plenty of room for growth in the CF market by winning approvals for younger age groups and by securing additional reimbursement deals.

The company and a partner, CRISPR Therapeutics, plan to file for regulatory approvals of their CTX001 gene-editing therapy in treating blood disorders later this year. CTX001 could add another non-CF blockbuster to Vertex’s lineup.

Vertex is advancing its experimental drug VX-147 into late-stage testing in treating APOL1-mediated kidney disease. COO Stuart Arbuckle said in the company’s fourth-quarter conference call that VX-147 “represents a multibillion-dollar opportunity” for Vertex. And there’s more: Vertex expects to soon report results from a phase 2 study of VX-548 in treating acute pain. The company also has high hopes for its Type 1 diabetes program and believes it could have a functional cure for the disease on the way.

With a relatively low recent forward-looking price-to-earnings (P/E) ratio near 16, and its growth prospects in CF and other indications, this stock could be a big winner. (The Motley Fool owns shares of and has recommended Vertex Pharmaceuticals and CRISPR Therapeutics.)

Ask the Fool

Q: Why do stock prices go up and down from day to day? – K.W., Hendersonville, North Carolina

A: Over the long run, a company’s stock price will generally rise or fall in accordance with changes in the value of the company’s underlying business. As Netflix, for example, adds more subscribers and rakes in more money over time, its share price will rise.

From day to day, though, stock prices fluctuate based largely on what investors think the stock is worth. They might react to a variety of developments, like the company reporting a strong (or weak) quarter; its management changing; being upgraded (or downgraded) by a Wall Street firm; it launching new products or services; the company acquiring another company or being acquired; being involved in a scandal; signing (or losing) a big contract; or changes in supply or demand for its offerings.

Sometimes stocks will rise (or fall) on rumors, or simply on investor enthusiasm – perhaps because many other stocks are rising. Aim to be a long-term investor, and don’t pay too much attention to short-term moves.

Q: What books will give me a solid grasp of the energy industry and its history? – N.O., Kalamazoo, Michigan

A: Try Daniel Yergin’s Pulitzer Prize-winning classic, “The Prize: The Epic Quest for Oil, Money & Power” (Free Press, $24), which was followed by “The Quest: Energy, Security, and the Remaking of the Modern World” (Penguin, $22) and recently, “The New Map: Energy, Climate, and the Clash of Nations” (Penguin, $22).

Also good are “Energy: A Human History” (Simon & Schuster, $22) by Richard Rhodes and “Energy and Civilization: A History” (The MIT Press, $20) by Vaclav Smil.

My dumbest investment

My dumbest investment was in a penny stock for a nutritional food products and supplements company. I paid $0.87 per share when it was a hot penny stock, seven or eight years ago; it’s now down 99.88%.

After the fact, I did the research I should have done earlier and learned that the company address was a house in a subdivision. I keep the stock in my account to remind myself to do research BEFORE buying. This dumb move turned $3,000 into $3. – G.W., online

The Fool responds: You’re one of countless investors, often new ones, who get snookered by penny stocks (those trading for less than about $5 per share).

There’s a good chance that you read somewhere online that the company was going to become a huge force in supplements, and you thought its price, below $1 per share, was a bargain.

The truth, though, is that many penny stocks are tied to tiny, shaky – or shady – companies that are unprofitable. It can be hard to find reliable information on them, too: The website for the company you mentioned doesn’t even include its financial statements.

It can be easy to assume that a stock can’t fall far below $0.87 per share, but the stock was recently at $0.0003 per share, with a total market value near $175,000 – less than half the median sales price of homes recently sold in the U.S.

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