I look for two qualities to determine which stocks are most likely to succeed over the long run. First, the stock should have a moat. Warren Buffett popularized this idea, which refers to a company's ability to sustain a competitive advantage over its rivals. Second, the stock should have optionality -- multiple paths to generate growth.

Many stocks check off one of these two boxes. Fewer stocks, though, meet both criteria. But there's a fast-growing biotech that claims a strong moat and has plenty of optionality. And this biotech is my top stock to buy in May.

Which stock is it? Vertex Pharmaceuticals (NASDAQ:VRTX)

Scientist picking up a test tube from a test tube rack

Image source: Getty Images.

A great moat

Companies with the strongest moats possible are monopolies. Vertex isn't fully a monopoly, but it's pretty close to being one.

The biotech has three approved drugs that treat cystic fibrosis (CF), a genetic disease that affects patients' ability to breathe. There are other companies with approved CF drugs, but none of those drugs addresses the underlying genetic cause of the disease. Vertex's Kalydeco, Orkambi, and Symdeko do.

One way that Vertex can protect its near-monopoly is through its intellectual property rights. Patent protection for the company's oldest drug, Kalydeco, extends through 2025 in Europe and 2027 in the United States. Orkambi's patents don't expire in the U.S. until 2030 and in Europe until 2026. Patents for Symdeko expire in 2027 in the U.S. and in 2028 in Europe.  

Vertex doesn't just have the only approved drugs for treating the underlying cause of CF -- it has the only drugs in late-stage clinical development targeting the disease. The company's closest competitors have experimental CF drugs in phase 2 clinical studies. This head start for Vertex is perhaps an even more important component of its moat than the biotech's patents are.

CEO Jeff Leiden stated at the Cowen healthcare conference last year that Vertex already knows where all the CF patients are because of its efforts in commercializing its current drugs. He also said Vertex's experience shows that patients are reluctant to switch to a new drug if they're taking a therapy that works well for them. Even if rivals are successful in their clinical testing -- and that's a big if -- Vertex is so far ahead of the pack that it could essentially lock up the CF market before competition arrives on the scene.

Lots of optionality

Vertex hits the ball out of the park when it comes to optionality. First, around 18,000 patients currently use the company's three approved drugs. But there are 39,000 patients worldwide who are eligible to use either Kalydeco, Orkambi, or Symdeko. Vertex has a great path for growth simply targeting those additional patients.

However, the company continues to push to expand the labels for its drugs to treat younger patients. Vertex thinks these label expansions can increase the addressable patient population for its three drugs to 44,000. But that's just a start.

The biotech expects to file for regulatory approval of a triple-drug combination CF therapy later this year. If this combo wins approval in 2020, Vertex should be able to boost the target patient population to 68,000 -- nearly 75% greater than the current addressable patient population.

That would leave around 7,000 CF patients worldwide with no treatment to address the underlying genetic cause of their disease. Vertex is working with CRISPR Therapeutics to develop gene-editing therapies to help these remaining patients.

So far, we've just talked about Vertex's growth opportunities in CF, which are pretty impressive. But the biotech is also actively working to develop drugs to treat several other diseases.

Vertex is farthest along with its experimental pain drug program. The results from three phase 2 clinical studies for the company's lead candidate for treating pain, VX-150, were positive. Jeff Leiden said in Vertex's Q1 conference call that the company expects to advance the first of several additional pain drugs that are currently in late preclinical development into a phase 1 clinical study this year. 

The biotech thinks its CF expertise will pay off in treating another genetic disease, alpha-1 antitrypsin (AAT) deficiency. Vertex advanced its first experimental AAT drug into phase 1 development in December. It expects a second AAT drug to move to clinical testing in 2019.

The company is also working with CRISPR Therapeutics to develop a gene-editing therapy for treating rare blood diseases beta-thalassemia and sickle cell disease. Phase 1/2 studies are currently under way for both indications.

A few risks, though

Vertex does face some risks. It's possible that the biotech's clinical studies won't be successful. The chances of pipeline setbacks are probably greater with Vertex's non-CF drugs.

The company could also be negatively affected by major healthcare system changes in the United States. Politicians in both major U.S. political parties are focusing on controlling prescription drug costs. These efforts could lead to less flexibility for Vertex in setting the prices of its drugs.

An even bigger worry is the prospect of implementation of a single-payer healthcare system. Several Democratic presidential candidates have expressed support for Medicare for All, a proposal that would have the federal government serving as the primary entity negotiating drug prices with biopharmaceutical companies in the United States.

Time to buy

I think Vertex will continue to dominate the CF market. That alone gives the biotech great growth prospects. Any success Vertex has in other therapeutic areas would only make the stock more attractive.

It's possible Vertex could run into some bumps along the way with clinical study setbacks or healthcare system changes. However, I continue to view Vertex as the best biotech stock on the market and a great stock to buy right now.