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Better Buy: Vertex Pharmaceuticals Incorporated vs. Galapagos NV

By Keith Speights - Sep 28, 2018 at 8:16AM

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Which stock wins in a battle between these two biotechs?

When it comes to treating cystic fibrosis (CF), you have Vertex Pharmaceuticals ( VRTX -0.27% ) and, well, that's pretty much it. However, Galapagos ( GLPG 0.00% ) still hopes to challenge Vertex in the CF market in the not-too-distant future. The clinical-stage biotech also could soon have a big winner outside of the CF indication.

So far in 2018, Vertex and Galapagos are pretty much neck and neck in terms of stock performance. Which of these biotech stocks is now the better pick for long-term investors? Here's how Vertex and Galapagos compare.

Three scientists looking at an image of DNA.

Image source: Getty Images.

The case for Vertex

Vertex already has three approved CF drugs -- Kalydeco, Orkambi, and Symdeko. Success of these drugs has helped make Vertex highly profitable, with over $207 million in earnings in Q2. The drugs have also given the company a cash stockpile totaling nearly $2.8 billion.

About the only thing that stands in the way for even more growth from Vertex's three CF drugs is finalizing reimbursement deals with European countries. Vertex has reached agreements for reimbursement of Orkambi with several European nations, including Germany. The company hasn't struck a deal in two important countries, though -- France and the United Kingdom.

The next big opportunity for Vertex is with its triple-drug combinations in late-stage clinical testing. Vertex thinks that it will submit two of these triple-drug combos for U.S. regulatory approval no later than the middle of 2019. These drugs hold the potential to expand the biotech's total addressable market in CF by more than 50%.

But as successful as Vertex is and should continue to be in CF, the biotech isn't limiting itself to only one targeted disease. Vertex and partner CRISPR Therapeutics plan to begin a phase 1 clinical study evaluating gene-editing therapy CTX001 in treating rare blood disorder beta thalassemia within the next few months. Vertex's pipeline also includes candidates that could help patients recover from acute spinal cord injury and alleviate acute pain. 

Wall Street analysts project that Vertex will increase its earnings by nearly 58% annually over the next five years. This impressive potential growth rate makes the biotech look like a pretty good long-term bargain at its current share price.

The case for Galapagos

Galapagos can't boast of enormously successful approved products like Vertex can -- at least not yet. However, Galapagos does have a remarkably deep pipeline for a clinical-stage biotech.

The company's lead pipeline candidate, filgotinib, attracted the attention and some big bucks from Gilead Sciences ( GILD 1.07% ). Gilead licensed filgotinib in 2015, with Galapagos receiving an upfront payment of $725 million, the potential for up to $1.25 billion in milestone payments, generous tiered royalties, and a profit split in some markets.

Gilead and Galapagos announced positive results in September from a phase 3 study of the drug in treating rheumatoid arthritis. Two more late-stage studies are underway. If all goes as well with these two studies, Galapagos could have its first approved product in the not-too-distant future. Filgotinib is widely expected to become a blockbuster if approved.

Galapagos also has another late-stage pipeline candidate with GLPG1690. The company plans to begin dosing patients in a phase 3 study of the drug in treating idiopathic pulmonary fibrosis (IPF) later this year. In addition, Galapagos expects to soon announce interim results from a phase 2 study of a triple-drug CF combo. 

Although Galapagos doesn't generate product revenue yet, the biotech's market cap tops $6 billion. This reflects investors' great expectations for the company's pipeline candidates, particularly filgotinib.  

Better buy

I think that Galapagos and Gilead will have a big winner with filgotinib. However, I'm not so optimistic about Galapagos' chances with its triple-drug combo for CF. Galapagos reported disappointing results in June from a study of one of the drugs in that combo. Those results led AbbVie to pull out from participating in a second planned triple-drug combo.

But while I like Galapagos' prospects with filgotinib, I like Vertex's overall prospects a lot more. My view is that Vertex will continue to dominate the CF market. And I expect the biotech to use the profits from its CF drugs to fund expansion into new areas of growth. In my opinion, Vertex is the hands-down winner between these two biotech stocks. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Vertex Pharmaceuticals Incorporated Stock Quote
Vertex Pharmaceuticals Incorporated
$204.45 (-0.27%) $0.55
Galapagos Stock Quote
$48.29 (0.00%) $0.00
Gilead Sciences, Inc. Stock Quote
Gilead Sciences, Inc.
$69.67 (1.07%) $0.74

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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