Vertex Pharmaceuticals (NASDAQ:VRTX) hit paydirt when the company's first medicine to treat the underlying causes of cystic fibrosis (CF) -- a rare condition that affects several internal organs like the lungs -- was approved by the U.S. Food and Drug Administration in 2012. Since then, the company has strengthened its monopoly on the CF market by developing several new drugs, and its shares are up by more than 500% as a result.

However, it seems Vertex's assumed continued dominance in the CF market is already being factored into its stock price: The company currently trades at 33 times future earnings. Will Vertex continue to deliver market-beating returns? Or are the company's best days in the rearview mirror?

Doctor in lab coat with a confused facial expression and his hands in the air.

Image Source: Getty Images.

CF will continue to be a major growth driver

Because there are 127 known mutations of the gene that causes CF, only 39,000 patients with this rare genetic condition are eligible to be treated with Vertex's first trio of drugs -- Kalydeco, Orkambi, and Symdeko -- out of 75,000 patients with CF in the U.S., Europe, and Australia. However, the company recently received FDA approval for Trikafta, a triple combination therapy with the potential to treat the vast majority (about 90%) of patients with CF since it targets the most common CF mutation. In other words, the company's addressable market increased thanks to this approval, and it could continue to get larger as Trikafta racks up more regulatory approvals in Europe. Sales of Trikafta could reach as much as $4.3 billion by 2024, according to projections by research firm EvaluatePharma. 

Note that during the third quarter, Vertex's revenue was $950 million, a 21% year over year increase. The company's revenue should continue growing at a nice clip thanks to Trikafta. 

Beyond CF

Sales of Vertex's drugs that treat the underlying causes of CF will eventually lose steam since the addressable market for the drugs is limited. With that in mind, the company is looking for ways to diversify its product offerings. Vertex's pipeline includes potential drugs for such illnesses as sickle cell disease, a rare and potentially life-threatening genetic condition that affects red blood cells. The company is developing a candidate treatment for sickle cell disease called CTX001 in collaboration with CRISPR Therapeutics (NASDAQ:CRSP). In early 2019, CTX001 (which is still in phase 1/2 testing) received a fast-track designation from the FDA, which is "designed to facilitate the development and expedite the review of drugs to treat serious conditions and fill an unmet medical need."

The company's pipeline also includes VX-150, a potential drug for acute pain caused by small fiber neuropathy, a neurological disorder that often arises as a result of some other underlying medical condition, such as diabetes, and causes severe pain most often to the hands and feet of the patient. VX-150 is currently in phase 2 testing.

Further, in September 2019, Vertex announced its acquisition of the privately held biotechnology company Semma Therapeutics for $950 million in cash. Vertex is after Semma's potential cure for type-1 diabetes, and if the company manages to reach that lofty goal, it will reap the benefits for many years to come.

Should you buy?

There is no guarantee that Vertex's goal to find a cure for type-1 diabetes via its acquisition of Semma Therapeutics will bear fruit. Also, the products the company is currently developing could run into regulatory setbacks. However, Vertex's monopoly on the CF market -- not to mention its latest approved trio of drugs -- means the company's top line is poised to continue growing rapidly. For that reason, and despite the company's high P/E ratio, Vertex is, in my view, a growth stock worth buying.