Two of the hottest biotech companies this year are undoubtedly Vertex Pharmaceuticals (NASDAQ:VRTX) and Galapagos (NASDAQ:GLPG). For the former, the launch of a potential blockbuster drug for the treatment of cystic fibrosis would likely send shares to new levels. For the latter, a drug undergoing phase 3 clinical trials for multiple indications has witnessed promising top-line results. 

With billions of sales potentially on the table for both companies, the stakes are arguably very high. Let's look at which of the two companies is a better buy for avid biotech investors.

Laboratory worker looking at camera.

Image source: Getty Images.

A leader in treating cystic fibrosis 

Currently, Vertex has four approved medicines for cystic fibrosis (CF), a life-threatening genetic condition that can clog the lungs and affect the pancreas. The most recent treatment to be approved by the Food and Drug Administration is Trikafta, a triple combination therapy. Trikafta is estimated to treat 90% of CF patients worldwide with a key gene mutation and has high efficacy. In fact, the majority of CF patients in the U.S. are already on Trikafta.

In Q1 2020, Vertex's revenue grew to $1.52 billion, a massive improvement of 77% from last year. Additionally, adjusted operating income rose by 133% to $877 million. The growth is from Trikafta, which brought in over $895 million in revenue in the quarter. A majority of the 18,000 patients with CF in the U.S are now on the life-saving drug.

The incredible growth is far from over. Vertex is now seeking Trikafta's label expansion to treat CF patients ages 6 to 11. Moreover, the company faces significant opportunities for international expansion in the EU and the rest of the world, as currently only $328 million of its revenue come from outside the U.S.

With annual guidance of $5.3 billion to $5.6 billion in revenue, over $4.2 billion in cash, and no debt, Vertex is on track to achieve superb growth this year.

A miracle drug company 

Together with Gilead Sciences (NASDAQ:GILD), Galapagos is investigating its drug filgotinib (a selective enzyme inhibitor) for multiple indications in late-stage clinical trials. This May, the drug demonstrated an 11.5% to 26.1% improvement in patients with severe ulcerative colitis in its phase 3 investigation. The results were considered highly significant statistically, with safety profiles comparable to that of placebo. 

And filgotinib also demonstrated at least 20% improvement when given to patients with rheumatoid arthritis in phase 3 results announced in June. In addition, the drug's efficacy in treating psoriatic arthritis is backed by long-term data in phase 3. The company expects the drug to be approved for at least one of these indications this year.

Together, analysts estimate filgotinib will achieve more than $3 billion in peak annual sales from all of its indications combined. With $6.4 billion in cash and operating at a projected annual loss of just $450 million to $484 million in 2020, Galapagos is a well-rounded growth stock with huge potential. 

So which is the better buy? 

Currently, Vertex has a market capitalization of $73.8 billion, compared with projected annual 2020 revenue of $5.5 billion at the midpoint. Meanwhile, Galapagos has a market capitalization of $13 billion versus projected peak revenue of $3 billion for filgotinib. In other words, Vertex is trading at 14 times price to forward sales while Galapagos is trading for about 4 times price to forward sales. When it comes to valuation, Galapagos has the upper hand.

Both companies have innovative products in their pipeline, ample cash to offset research and development expenses, and reasonable valuations for their growth. In my view, investors would be getting a great deal by adding either of them (or both) to their portfolios. If I had to pick, however, I would go with Galapagos for its bargain price