Image Source: Rodrigo Senna cc by 2.0.

By Brian Nelson, CFA

Over the past few weeks, UnitedHealth Group (UNH) has faced a plethora of negativity. First, UnitedHealthcare CEO was shot and killed – not UnitedHealth Group’s CEO Andrew Witty – but the CEO of its health benefits unit. The killing happened right before UnitedHealth’s plans for its annual Investor Day. The event sparked social media outrage against U.S. health insurers.

There has also been new legislation introduced to potentially break up pharmacy benefit managers. President-elect Donald Trump has also made statements to the effect of breaking up the middlemen in reference to the pharmacy benefit managers. As of right now, we continue to monitor the situation, but the risks have substantially increased to the UnitedHealth Group story. We have no plans to remove it from the Best Ideas Newsletter portfolio at this time as we await news flow to settle down.

Our latest write-up on UnitedHealth Group can be found here: https://www.valuentum.com/articles/unitedhealth-remains-free-cash-flow-generating

On December 19, Vertex Pharma (VRTX) “announced results from its Phase 2 study of suzetrigine, an investigational, oral, highly selective NaV1.8 pain signal inhibitor in people with painful lumbosacral radiculopathy (LSR). The study met its primary endpoint with statistically significant and clinically meaningful reduction in pain on the numeric pain rating scale (NPRS).” The suzetrigine arm showed a within group reduction from baseline in pain with a mean change in NPRS at Week 12 of -2.02.

Though the news was welcome, many investors took issue with the “placebo reference arm which showed a similar within-group reduction from baseline in pain with a mean change in NPRS at Week 12 of -1.98. The study was not designed nor powered for statistical comparison between suzetrigine and placebo,” but the news is weighing on the stock nonetheless. The company still expects to advance suzetrigine to Phase 3 in painful lumbosacral radiculopathy, and we await further results. Suzetrigine is one of Vertex’s important pipeline drugs for pain reduction, and the stock traded down more than 10% on the news. 

All things considered, we continue to like Vertex’s established position in cystic fibrosis and its opportunity in gene-editing therapies as well as a new class of medicine for acute pain that’s without the limitations of opioids. Though the news regarding suzetrigine wasn’t what the market was hoping for, the company’s pipeline is progressing nicely. The high end of our fair value estimate range for Vertex stands at $640 per share.

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