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Worst House, Best Neighborhood

Cramer’s so confident that biotech will work in this environment that he said together even a laggard in the group is worth buying.

And that’s just was Vertex Pharmaceuticals is. While the Biotech HOLDRs, the biotech index, is up almost 18% since July first, Vertex dropped 16%. But Cramer defended the stock today, claiming Wall Street misread some recent study data and took VRTX down unnecessarily.

The company’s Teleprevir drug, a treatment for chronic hepatitis C currently in Phase III trials, took a hit when Schering-Plough’s rival drug, testing in Phase II, reported better results. At least that’s what it seemed like at first.

As Cramer pointed out, the two tests weren’t a true one-to-one comparison. The test designs were different, and Schering had fewer test subjects and lower drop rates. Also, Vertex’s drug seemed to have less severe side effects. And Teleprevir works on patients with treatment-resistant hepatitis C, while Schering’s drug does not. That means Vertex had virtually exclusive access to the 300,000 Americans who fit that description. And, on top of all this, Teleprevir is much closer to market than Schering’s drug. In the U.S. alone, the expected sales top out at $1.2 billion.

Vertex is cheap with a promising outlook, both from its cystic fibrosis pipeline and the hep C drug. This alone should attract most big-money managers. But for the doubters, Cramer mentioned a number of upcoming catalysts – two new studies this quarter and a key conference at the end of October – that should move the stock.

Jim's charitable trust owns Schering-Plough.

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