Vertex Pharmaceuticals (NASDAQ:VRTX) is rapidly revolutionizing the treatment of cystic fibrosis, a devastating genetic condition that inhibits the lungs' ability to breathe and causes infections. More than 70,000 people worldwide have cystic fibrosis. There is currently no cure for the disease.

Vertex has developed the only four drugs globally that directly target the gene mutations behind the condition. The best among them, Trikafta, is actually a triple-combination therapy consisting of the other three, and it can treat more than 90% of cystic fibrosis patients. Is Vertex a buy on its ability to treat rare conditions and reward shareholders? Let's find out.

Biologist looking through microscope.

Image source: Getty Images.

Trikafta is wildly popular

It's been a little over a year since the U.S. Food and Drug Administration (FDA) approved Trikfata, and it's already a blockbuster drug, bringing in $960 million in the third quarter of 2020 alone. Overall revenue at Vertex increased to a staggering $1.54 billion during this quarter, a sharp increase from the $950 million it earned in Q3 2019.

As its sales increased, its margins expanded as well. Right now, Vertex has one of the best operating margins in the biotech sector, at 56%. That's not all. The company also managed to more than double its earnings per share over last year's quarter, to $2.64.

Not only is Vertex wildly profitable, but it has also managed to accumulate $6.2 billion worth of cash and equivalents with no debt whatsoever. Last month, the company decided to reward its shareholders by announcing a $500 million stock buyback program through 2022. When a company repurchases its stock, it increases its earnings per share, because it leaves fewer shares outstanding to represent the same amount of profits.

And we can rest assured that Vertex's growth streak isn't going away anytime soon. In August, the European Medical Agency approved the company's commercialization application for Trikafta (marketed as Kaftrio). This should make the drug available to more than 20,000 cystic fibrosis patients across the continent, more than the 18,000 people currently taking Trikafta in the U.S.

The company also recently expanded labels for its other cystic fibrosis medications to children and infants. The company expects to do the same for Trikafta as well by the end of 2021. The drug is currently only approved to treat adults with the condition.

The path to growth doesn't stop with the EU; Vertex also has plans to expand Trikafta to Australia, Canada, and the rest of the world in the near future. For all its efficacy and improvements in quality of life, the drug comes at a hefty price tag of $311,000 per year. For patients with insurance, Vertex may be able to reduce the price to as little as $15 per refill. For those without insurance, Vertex offers a financial assistance program. The company has been able to recoup its development costs and then some with this pricing setup.  

As icing on the cake, Trikafta's patents in the U.S. and EU do not expire until 2037, giving Vertex nearly two decades of market exclusivity for the drug. A huge competitive moat should instill confidence in shareholders that generic competitors will not enter the market anytime soon.

A great buy 

In terms of valuation, Vertex initially seems expensive, trading at 10 times price-to-sales (P/S). However, because the company is so efficient at making money, its price-to-free cash flow multiple stands at only 20. That's dirt cheap, considering competitors such as Regeneron Pharmaceuticals and AstraZeneca are trading at between 37 and 71 times cash flow -- and their revenue is growing much more slowly. Overall, due to its reasonable price, highly successful business, and strong product moat, Vertex is arguably the best biotech stock to buy right now. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.