In the past year, Vertex Pharmaceuticals' (NASDAQ: VRTX) stock price has fallen by 24%. That is a particularly disappointing performance, especially considering the S&P 500 rose by 40% over the same period.

However, there is a silver lining here: Vertex stock now looks amazingly cheap, trading at a price-to-earnings (P/E) ratio of 20, while the average biotech stock is valued at a P/E ratio of 31. So should you buy Vertex stock on the dip?

Doctor looking at a lung X-ray.

Image source: Getty Images.

What happened?

In the first quarter, Vertex grew its revenue by 14% to $1.723 billion, and earnings by 16% to $781 million. Almost all of its revenue came from its sales of medications to treat cystic fibrosis, including its triple-drug combination therapy, Trikafta. Cystic fibrosis (CF) is a hereditary condition that causes chronic lung infections and fluid build-up, and restricts the ability to breathe.

In clinical studies, Trikafta improved patients' lung function by an average of 10% to 13% compared to a placebo. More than 83,000 patients in the U.S., Canada, Australia, and the E.U. are eligible for treatment with Trikafta.

The problem is that a course of therapy can cost up to $311,000 per year. Not every CF patient can afford that, even with a reasonable insurance copay. Approximately 50% of the eligible cystic fibrosis patients in the regions mentioned above are being treated with Vertex's drugs. That's probably as far as the company is likely to go in terms of market penetration due to current pricing.

Is the company's growth sustainable?

Unfortunately, Vertex does not have many treatment areas it can easily extend into beyond the cystic fibrosis indication. It is currently researching an mRNA gene therapy that could cure the condition in a single treatment. However, that candidate therapy is still in the preclinical phase, and even if it's successful, would take years to reach the market.

Perhaps the most interesting clinical-phase candidate in its pipeline right now is CTX001, a gene therapy designed to treat two rare blood disorders -- beta thalassemia and sickle cell disease. In phase 1/2 clinical trials, CTX001 was effective in preventing life-threatening blood vessel obstructions in sickle cell disease, as well as reducing the need for blood transfusions in patients with beta thalassemia.

Take note, however, that the company is partnering with CRISPR Therapeutics (NASDAQ: CRSP) to develop the treatment. Vertex agreed to pay $900 million in upfront payments, and could owe another $200 million in milestone payments to CRISPR Therapeutics in the event of regulatory approval. Vertex will retain 60% of the profits if the drug makes it to market, up 10% from the companies' original 50-50 deal.

What's the verdict?

Vertex Pharmaceuticals stock looks fairly valued at the moment. Due to its limited pipeline and its relative saturation of the cystic fibrosis treatment market, the company is likely to experience problems with revenue growth. More cautious biotech investors may wait to see if the company can succeed with its new partner, CRISPR Therapeutics before initiating a stake.

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Zhiyuan Sun has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends CRISPR Therapeutics. The Motley Fool recommends Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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