The core franchises of Vertex Pharmaceuticals (NASDAQ:VRTX) and Incyte (NASDAQ:INCY) continue to generate hefty sales, enabling the companies to invest heavily in exciting research and development programs. While Vertex's $63 billion valuation towers over Incyte's $17 billion market cap, both offer biotech investors a chance to own interesting portfolios of potential new drugs. 

A cystic fibrosis juggernaut

Vertex posted over $4 billion in 2019 revenue, fueled by its cystic fibrosis franchise: Kalydeco, Orkambi, Symdeko/Symkevi, and Trikafta. Better-than-anticipated sales for Vertex's latest cystic fibrosis drug, Trikafta, drove the most recent quarter's success.

Hundred-dollar bills stuffed into a pill bottle, with pills and bottles surrounding it.

Image source: Getty Images

While consensus estimates pegged Trikafta sales at $73 million, Vertex ended up posting $420 million in revenue for the drug -- quite a substantial outperformance. Importantly, it means that doctors and patients continue to switch to Trikafta and reimbursement does not appear to be limiting initial use.

The positive launch and expected success of Trikafta means that it will cannibalize some product revenue, primarily from Symdeko. Analysts expect Trikafta sales to be approximately $1.3 billion in 2020. Additionally, Vertex continues to enroll people in a phase 3 clinical trial for Trikafta in patients ages six to 11. The current approval is for use in patients age 12 and older.

Tackling bone marrow disease

Incyte continues to try to move beyond its dependence on Jakafi, a treatment for three diseases of the bone marrow: polycythemia vera, myelofibrosis, and acute graft-versus-host disease. The most recent approval came in May 2019. While not Incyte's only revenue source, Jakafi brought in $531 million of last quarter's $579 million in total revenue. For the year, Jakafi sales made up $1.7 billion of the $2.1 billion in total sales. 

One up-and-coming product is Olumiant, a drug developed in partnership with Eli Lilly (NYSE:LLY). The drug gained approval in 2018 for treating moderate to severe multiple sclerosis, an autoimmune disease that causes inflammation and degeneration of the joints. 

Building beyond the franchise

Drug development is not an easy undertaking, as both healthcare companies and biotech investors know. Incyte has stumbled a few times recently. Analysts continue to question the robustness of Incyte's pipeline and may be penalizing the company for past failures. That said, 2020 will be a year for both Vertex and Incyte to show off promising new pipeline candidates and shift the focus away from each company's existing franchise.

For Vertex, this means continuous updates on CTX001, a gene editing therapy developed in conjunction with CRISPR Therapeutics (NASDAQ:CRSP). Initial patients with beta-thalassemia and sickle cell disease have received CTX001, and the therapy could potentially be curative. Last month the Food and Drug Administration (FDA) granted fast-track designation to CTX001 for sickle cell disease. The distinction aims to expedite the development and review of promising therapies for diseases with unmet medical needs.

In addition to CTX001, Vertex's phase 1 programs for APOL-1 kidney disease and alpha-1 antitrypsin deficiency have garnered analyst attention. APOL-1 (apolipoprotein L-1) gene variants in certain populations emerged as a cause of forms of kidney disease such as focal segmental glomerulosclerosis, a rare disease that impairs the filtering machinery of the kidney. Alpha-1 antitrypsin deficiency, an inherited condition, leads to impairment of lung function and, in 10% of cases, liver disease.

Incyte's 2020 appears to be shaping up better than 2019. First, the FDA accepted the New Drug Application for non-small cell lung cancer drug capmatinib, which was developed in partnership with Novartis (NYSE:NVS). The FDA also granted Priority Review, a mechanism to shave four months off the review time. Second, partner Eli Lilly and Incyte announced positive results from two phase 3 clinical trials of baricitinib, an oral treatment for moderate to severe acute dermatitis. Third, the European Medicines Agency validated the company's Marketing Authorization Application, the submission required for gaining approval in Europe, for its cholangiocarcinoma drug pemigatinib.

However, the year started with a failed phase 3 trial of itacitinib in treatment-naive acute graft-versus-host disease. Investors responded by selling, causing a drop in the stock price of approximately 10%. Not scared off by the hiccup, Incyte continued to expand its pipeline through a licensing deal with Morphosys (OTC:MPSYF) for its therapeutic antibody tafasitamab. Incyte sees something of great value since it paid $750 million up front and made a $150 million equity investment in Morphosys. Incyte expects an FDA approval decision for a type of lymphoma in the second half of 2020.

So which company is a buy today?

The second half of 2020 should be rich with clinical and regulatory milestones across a range of programs for Incyte. Vertex's pipeline, albeit earlier in stage, will likely have fewer milestones compared with Incyte. Despite that, the momentum really appears to be in Vertex's favor, with analysts projecting earnings per share in 2020 of $7.70 compared to $3.14 for Incyte. Incyte needs to reestablish R&D credibility, and investors want to see that the $1 billion collectively paid to Morphosys proved to be a smart deal. Incyte should see some success, particularly later in the year. Until then, the chips favor Vertex.