Vertex Pharmaceuticals (VRTX 0.10%) is the leading drugmaker in the treatment of cystic fibrosis, a life-threatening genetic disease that causes infections to several organs, including the lungs and pancreas. All of the company's approved drugs treat CF's underlying causes, and its dominance in this market continues to spur strong top-line growth.
Alexion Pharmaceuticals (ALXN), on the other hand, boasts a more diversified suite of products. Its top-selling selling drug is Soliris, which treats several conditions including the rare blood disease hemolytic uremic syndrome (HUS), and another blood disease called paroxysmal nocturnal hemoglobinuria (PNH). The company also markets Strensiq, which treats infantile and juvenile-onset hypophosphatasia, and Ultomiris, a PNH treatment.
Vertex has performed well on the stock market this year, with a 33% gain that handily outpaced the S&P 500's average 25% rise. Alexion, by contrast, has gained just 12%. But for investors considering these pharma stocks today, the question is which is best positioned deliver the better performance from here.
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Growth prospects
Cystic fibrosis affects about 75,000 people in the U.S, Europe, and Australia. However, there are more than 100 genetic mutations that cause CF, which is why only about 44,000 patients with this genetic disease are eligible for Vertex's currently approved drugs. However, the company is awaiting approval decision from the U.S. Food and Drug Administration for a trio of new drugs -- VX-445, Tezacaftor, and Ivacaftor -- that could expand its addressable market in cystic fibrosis to 68,000 patients.
In short, Vertex's monopoly in CF treatment will expand if the candidate treatments are approved, which could happen sometime next year. Vertex also has several candidates in phase 2 and phase 1 testing, including a couple that aim to treat CF, and others for conditions such as beta thalassemia and sickle cell disease.
Alexion's shares took a dive in August after it was announced that the U.S. Patent and Trademark Office agreed to review (and potentially invalidate) three patents it holds related to Soliris at the request of Amgen (AMGN -0.50%), which is developing a biosimilar to the treatment. The prospect of its top-selling drug competing with a biosimilar isn't great news for Alexion.
That being said, Soliris is currently in phase 3 trials for several more indications, and Alexion's late-stage pipeline includes other candidates such as ALXN1840, a potential medicine for Wilson disease, a rare genetic disorder that causes an excess of calcium in body tissues. In total, Alexion has about two dozen candidates in its pipeline.
Interestingly enough, there has also been some talk about Alexion being a takeover target, with Amgen being mentioned as the potential acquirer.
Financial results
During the third quarter, Alexion's revenue of $1.2 billion was higher than Vertex's $950 million, and Alexion also reported a higher operating income -- $530 million compared to Vertex's $99 million -- and a net income of $467.6 million, which came in ahead of Vertex's net income of $58 million. However, Vertex has been growing its revenue at a faster pace of late.
Revenue Growth (Year Over Year)
|
Company |
Q3 2018 |
Q4 2018 |
Q1 2019 |
Q2 2019 |
Q3 2019 |
|---|---|---|---|---|---|
|
Vertex |
42% |
40% |
34% |
25% |
21% |
|
Alexion |
20% |
24% |
23% |
15% |
23% |
Though its revenue growth has decelerated consistently in recent quarters, things could pick up (or at least stabilize) for Vertex if it receives FDA approval for VX-445, Tezacaftor, and Ivacaftor.
Valuation
Over the past five years, Vertex's stock price has increased by 84%, while Alexion's has decreased by 42%. But those looking to own shares of the leader in CF treatment will have to pay a premium: Vertex is currently trading at 32.83 times expected future earnings, and its price to earnings growth (PEG) ratio is 1.55. Alexion, with a forward P/E ratio of 9.82 and a PEG ratio of 0.67, is far more attractively valued.
The verdict
I feel that Vertex's hold on the CF market will drive its share price to new heights and that it will likely continue to outpace Alexion, both in terms of top-line growth and share price gains. Things could get even worse for Alexion if it loses some of its patent protections related to Soliris. For those reasons, Vertex is, in my view, the better option at the moment, despite its pricey valuation.
