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Better Buy: Vertex Pharmaceuticals vs. Galapagos

By Keith Speights - Jan 25, 2020 at 9:31AM

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One of these biotechs dominates the treatment of cystic fibrosis. The other doesn't have a single FDA-approved drug -- yet.

Vertex Pharmaceuticals (VRTX 1.23%) turned in a very good performance in 2019, with its shares jumping 32% -- slightly outpacing the S&P 500 index's 30.4% return. But Galapagos NV (GLPG -1.07%) had a great year. The stock skyrocketed by nearly 126%.

However, for investors trying to decide which of them to buy now, those returns of the past don't matter much. What does matter are the respective strengths of Vertex's and Galapagos' products and pipelines. Here's how the two biotechs stack up against each other.

Gloved hands holding two test tubes

Image source: Getty Images.

The case for Vertex

Juggernaut. That's probably the best word to use for Vertex in the cystic fibrosis (CF) arena. The biotech's drugs remain unchallenged in addressing the underlying genetic cause of CF. Further, thanks to new reimbursement deals in several important international markets over the last few months, sales in the CF franchise should pick up momentum.

Even better, Vertex won FDA approval several months earlier than anticipated for its newest CF treatment, Trikafta. The triple-drug combo should expand the number of patients who can be treated by Vertex's therapies by more than 50% if it wins regulatory approval in Europe -- which seems quite likely.

Meanwhile, Vertex is looking to expand beyond the cystic fibrosis niche. It's partnering with CRISPR Therapeutics to use gene editing in treating the rare genetic blood disorders beta-thalassemia and sickle cell disease. Vertex and CRISPR are also working together to develop a gene-editing approach for treating the 10% of patients with CF whom its other drugs won't help.

Vertex management thinks that an approach similar to the one that has brought it success in the CF arena will work with other rare diseases. The company's pipeline includes programs targeting genetic disorders such as alpha-1 antitrypsin deficiency (AATD) and APOL1-mediated kidney diseases.

Rare diseases aren't the only area of interest for Vertex, though. Its most advanced pipeline program is VX-150, a pain drug. Vertex's 2019 acquisition of Semma Therapeutics also put the company front and center in an especially ambitious area -- attempting to develop a cure for type 1 diabetes.

In the meantime, Vertex's CF drugs continue to generate boatloads of revenue. Vertex should report 2019 sales of close to $3.7 billion. It ended the third quarter with a cash stockpile of $4 billion. 

The case for Galapagos

Galapagos doesn't have any approved products yet. The important word in that sentence, though, is the last one. In December, Galapagos and partner Gilead Sciences (GILD 0.90%) filed for FDA approval of filgotinib as a treatment for rheumatoid arthritis (RA) and used a priority voucher, which will speed up the process.

Assuming filgotinib earns FDA approval, the drug should be a commercial success. Some analysts project peak annual sales in the ballpark of $3 billion for the RA indication. Filgotinib is also being evaluated in several other indications, including atopic dermatitis, Crohn's disease, and psoriatic arthritis. Regulatory approvals in these other areas could boost its potential peak sales to around $6 billion.

Galapagos won't reap all of the rewards from filgotinib, however. The company licensed rights to the drug to Gilead in 2015, and will receive royalties starting at 20% of sales in the U.S. and in many key markets. However, Galapagos will split sales 50/50 with Gilead in several major European markets.

The relationship with Gilead is one of the biggest feathers in Galapagos' cap. Last year, the two companies expanded their collaboration agreement with a 10-year deal valued at more than $5 billion. Gilead owns a little over 25% of Galapagos, but can't boost its stake above 29.9% during the period covered by the agreement.

At one point, it looked like Galapagos might be on the road to compete against Vertex in the CF market. However, in 2018 AbbVie acquired Galapagos' entire CF program. Galapagos is eligible to receive royalties if those CF drugs make it to market.

Although Galapagos isn't profitable at this point, it doesn't have to worry about raising capital to fund its operations. Thanks to its deal with Gilead, Galapagos ended the third quarter with cash and cash equivalents of more than $6 billion.

Better buy

Both of these biotech stocks have promising growth prospects. I think that Galapagos might be the bigger winner again in 2020 if filgotinib wins FDA approval. However, my view is that Vertex is the better long-term pick.

I expect Vertex to keep racking up higher sales with its CF drugs. I'm also cautiously optimistic about the company's chances of success in expanding into at least one new indication. The stock price already reflects a lot of the company's earnings growth potential, but I think shares could move significantly higher over the next few years.

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Stocks Mentioned

Vertex Pharmaceuticals Incorporated Stock Quote
Vertex Pharmaceuticals Incorporated
$258.59 (1.23%) $3.14
Galapagos Stock Quote
$56.34 (-1.07%) $0.61
Gilead Sciences, Inc. Stock Quote
Gilead Sciences, Inc.
$63.84 (0.90%) $0.57

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