22 BARRON’S September 30, 2019
much larger over time, and in a relatively low-risk way.
What is the price/earnings multiple?
Bakri: The stock is trading for about $172. Con-
sensus earnings estimates for 2020 are $6.17 a
share, so the multiple is around 27 times earn-
ings. But profitability is going to ramp up
because a lot of the spending has been done. Ver-
tex is going to layer on new indications for exist-
ing treatments, which will take revenue up to $7
billion to $9 billion. Profit will drop to the bottom
line, and the multiple will contract. For someone
who wants to play biotech in a lower-risk way,
Vertex allows you to benefit from the scientific
innovation without the idiosyncratic risk.
Casdin: Vertex just announced the acquisition of
an early-stage cell-therapy company with trans-
formational potential in the treatment of Type 1
diabetes, one of many recent deals and partner-
ships they have done. We love to see forward-
thinking companies expanding their pipelines
into new growth areas. Gilead did this ex-
tremely well and built a tremendous business.
Could Vertex be an acquisition candidate?
Bakri: Yes and no. If I ran a big pharma com-
pany, it is exactly what I would want to buy. On
the other hand, an acquirer would probably
have to pay a big premium. I hope they don’t
get acquired because I need companies that can
grow and become profitable.
Why do you think Vertex can repeat its success?
Bakri: Vertex has an excellent chemistry plat-
form and is better at designing small molecules
than almost anyone. It has a lot of scientific ca-
pabilities and good partnerships with academic
institutions. Vertex hired David Altshuler from
the Broad Institute of MIT and Harvard [a bio-
medical and genomic research center] in 2014 as
its chief scientific officer.
I’ve also got two small-caps to recommend.
Ascendis Pharma [ASND] isn’t a sexy gene-
therapy company or a player in molecular medi-
cine. It modifies the drug-like properties of hor-
mones used to treat medical conditions, such as
parathyroid hormone and human growth hor-
mone. It turns out you can achieve a lot of
therapeutic benefits by changing the pharma-
cokinetics—the half-life and other pharmacology
properties of these treatments. This is like a
value-investing theme in biotech; it isn’t in the
limelight but could yield big rewards. Ascendis
will have a revenue-generating product in the
growth hormone area on the market in the next
couple of years, and it has a pipeline of other
products, including parathyroid hormone, that
address known large markets and could bring
potentially big improvements in the standard of
care. The stock is trading around $105, and the
market cap is $5 billion.
Tricida [TCDA] is an off-the-radar company
focusing on a drug for kidney disease. It is us-
ing an older polymer technology approved in
other diseases to soak up hydrogen ions, which
makes kidney-disease patients less acidotic.
Tricida’s drug application has been filed with
the FDA, and the drug could be approved next
year. There are a lot of data indicating that if
you improve the acidosis [reduce the level of
acid in the blood] of these patients, you will af-
fect the course of the disease in a positive way.
Tricida has a market cap of about $1.7 billion.
Let’s turn to Gbola. What excites you?
Amusa: Phagetherapeutics,asubsetofmicro-
biomemedicines,mightsoonemergeasaprecision
tooltoeradicatespecificstrainsofbacteriaimpli-
catedinchronicdiseaseslikeIBD.[Thehuman
microbiomereferstomicrobesthatliveonandin
thebody.]Theprescription-digital-therapeutics
spacecanalsoperformbysavingthehealth-care
systemcosts.Amongpubliclytradednames,Itend
tolikegene-therapycompaniesthatarepost-proof
ofconcept,withinternalmanufacturing,andgene-
therapycompaniesleveredtosyntheticbiology.
GenaspokeofRegenxbio,oneofourtoppicks
for2019.I’lldiscussitindifferentterms.Regenx-
biohasabout$450millionofcash,andmaycap-
tureupto10%oftheeconomicsfromZolgensma
inAveXis,whichwasboughtbyNovartisfor
about$9billion.Addup$450millionand$900
7
Picks
BioLife Solutions
BLFS
$16.95
Magenta Therapeutics
MGTA
$9.88
Invitae
NVTA
$19.24
MyoKardia
MYOK
$52.30
Eli Casdin
Chief Investment Officer
Casdin Capital
Note:Pricesasof9/26/19
Source: Bloomberg