Here’s (at least) one new reason to buy Vertex Pharmaceuticals stock.

Biotech acquisitions continue to increase this year. April 10th, Vertex Pharmaceuticals (VRTX -0.92%) announced that they would purchase Alpine Immunoscience (ALPN -0.05%) It raised $4.9 billion in cash from the deal, which is expected to close before the end of this quarter. The valuable asset that Vertex will acquire as part of this purchase is ALPN-303, a potential autoimmune treatment in Phase 2 clinical trials.

However, there is much more to the potential value of the deal for Vertex than the purchase of this particular pharmaceutical candidate might suggest. To understand the issue a little better, let’s look at why this move is good in the long run.

A gift that keeps on giving

ALPN-303 is being developed to treat IgA nephropathy (IgAN), a rare autoimmune disease for which there is no approved treatment to address the underlying cause. IgAN is estimated to affect about 4,200 people in the United States each year, but exact numbers are unknown because it can take a long time for noticeable symptoms to develop. Currently, approximately 125,000 people in the United States are living with this disease.

The purchase of ALPN-303 fits well with Vertex’s advancing strategic focus on rare diseases. All of our commercially available drugs treat diseases with low patient populations, such as cystic fibrosis (CF), beta thalassemia, and sickle cell disease, and much of our pipeline is dedicated to developing treatments for similarly uncommon diseases.

It also aligns with management’s long-standing goal of diversifying its offerings beyond existing markets for cystic fibrosis treatments. So, from the perspective of assessing how this acquisition will benefit shareholders, this is a very optimistic move and a reason to buy more shares as it demonstrates management’s commitment to continuing to execute its core business model successfully and ambitiously. .

Before the end of this year, Alpine’s program is expected to enter late-stage clinical trials, so if all goes as planned, it could receive marketing approval within two years. However, the povetacicept molecule, the active ingredient in ALPN-303, may actually have a variety of therapeutic applications far beyond IgAN. And here are some additional uncertain reasons why the stock may be worth buying.

According to researchers at Alpine, fobetacicept can be used to treat three other types of glomerulonephritis other than IgAN, as well as pemphigus, lupus, vasculitis, three autoimmune cytopenias, myasthenia gravis, several other neurological autoimmune diseases, and autoimmune hemolytic disease. It may be potentially useful in treating anemia. do. Even if you’ve never heard of most of these conditions, don’t be afraid.

The point is that each of these diseases represents the potential to conduct additional clinical trials or conduct additional research and development (R&D) work, ultimately expanding the molecule’s tractable market. That’s why Alpine’s executives call their molecule a “pipeline in a box.” There were enough directions worth exploring that there was no need to invest in other candidates. And now Vertex, with its enormous resources, owns the entire Shebang.

Risks involved.

It is unlikely that Vertex will be successful in commercializing a new product for any of the indications that could theoretically be treated with fobetacicept. Many of the potential indications are for rare autoimmune diseases, for which safe and effective treatments can be difficult to come up with. Still, shareholders don’t have to worry about 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. Considering Alpine’s current ownership of $327.4 million in cash and equivalents after the purchase, it should be worth about $6.6 billion. That said, there’s still plenty of money to invest in pursuing other growth opportunities, so this acquisition doesn’t significantly reduce our flexibility.

Additionally, Vertex’s trailing 12-month free cash flow (FCF) is close to $3.3 billion. This cash generation will allow us to immediately recoup the capital we committed to acquire Alpine. So if you’re looking for signs that this business is worth buying, you now have some more information than ever before.