Let me acknowledge right off the bat that biotech stocks, in general, have underperformed the broader market indexes over the last couple of years. I don't think this trend will continue for too much longer, though. And not every biotech stock has lagged behind the overall market.
Actually, there are quite a few biotech stocks that have performed really well and are still great picks for investors. But which is the best biotech stock to buy right now? My money is on Vertex Pharmaceuticals (NASDAQ:VRTX).
An expanding monopoly in cystic fibrosis
When you think of investing in biotech stocks, you probably envision high-risk but potentially high-reward stocks. Most biotech stocks do come with very high risks, especially biotechs that don't have approved products on the market yet. But I think that Vertex is one of the lowest-risk biotechs around.
I base this view on the fact that Vertex claims a monopoly in cystic fibrosis (CF). There are only four FDA-approved drugs that treat the underlying genetic cause of CF, and they all belong to Vertex. What's more, this monopoly is expanding.
Several of Vertex's CF drugs aren't yet approved for very young children. For example, the company's newest CF drug, Trikafta, recently won FDA approval for patients ages 12 and older. Vertex thinks that it will be able to secure additional approvals for younger patients, though, expanding its market.
It's no exaggeration that Trikafta is the most promising CF therapy ever. Market researcher EvaluatePharma ranked it as the most valuable pipeline candidate in the biopharmaceutical industry earlier this year, prior to the drug winning FDA approval five months sooner than expected. But approval in the U.S. is just a start. Vertex hopes to win European approval for Trikafta in 2020, paving the way for the company to treat close to 90% of CF patients worldwide.
AbbVie is developing a triple-drug combination therapy targeting CF. But its CF program is only in early stage testing. Vertex has a huge head start that I don't think will be overcome. In the meantime, the biotech isn't resting on its laurels. Vertex has a triple-drug regimen in phase 2 testing that could support once-daily dosing. It's also working with CRISPR Therapeutics (NASDAQ:CRSP) to develop a gene-editing therapy to treat the remaining 10% of CF patients that can't be helped by its current drugs.
An exciting pipeline beyond CF
Most people think of Vertex only in terms of its pioneering work in treating cystic fibrosis. But Vertex has a really exciting pipeline that goes beyond just CF.
Its most advanced program targets pain. Vertex reported positive results from three phase 2 studies evaluating VX-150 in treating several pain conditions. The company has other pipeline candidates targeting pain as well and is in the process of gathering additional data to pick the most promising experimental drug to advance into late-stage clinical studies.
Vertex and CRISPR Therapeutics are collaborating on developing a CRISPR-Cas9 gene-editing therapy targeting rare blood diseases beta-thalassemia and sickle cell disease. Results should be announced soon from phase 1/2 studies.
The biotech has especially high hopes for its experimental drugs VX814 and VX-864 targeting alpha-1 antitrypsin deficiency (AATD) in early stage clinical studies. Vertex executives like to say that AATD "looks, smells, and feels a whole lot like CF." Like CF, AATD is caused by a misfolded protein.
Don't pigeonhole Vertex as just a rare disease biotech, though. The company's recent acquisition of Semma Therapeutics puts Vertex at the forefront of potentially developing a cure for type 1 diabetes, which affects millions of patients worldwide.
Tons of cash
Many biotechs struggle with having enough cash to fund operations and advance clinical programs. Not Vertex. It sits on a cash stockpile of $4 billion.
Vertex CFO Charlie Wagner said at the recent Credit Suisse healthcare conference that the company plans to use its cash in large part on business development. Vertex has made two key acquisitions this year. Wagner hinted that more deals are on the way, with a focus on small biotechs with early stage programs.
Checking all the boxes
Long-time Vertex CEO Jeff Leiden has led the company to achieve tremendous success. He plans to transition into the role of Executive Chairman in April 2020. Vertex's chief medical officer, Reshma Kewalramani, will take his place as CEO. Don't worry, though: Kewalramani plans to continue following the business strategy that has worked very well so far. The main thing that will change under her leadership is the scale of Vertex's operations and ambitions.
There are several attributes that make a great biotech stock, including a solid product lineup with great growth prospects, a pipeline that's loaded with potential, a strong financial position, and a visionary leadership team. Vertex checks off all of these boxes better than any other biotech, in my view.