If you bought shares of Vertex Pharmaceuticals (VRTX 0.43%) in August 2016 and held them, you'd have a gain of 92% right now. That's not a bad return. However, it lags behind the performance of the S&P 500 index, which soared 104% during the same period.
With valuations so high, I don't expect the S&P 500 to continue delivering similar returns. However, I think that buying Vertex stock now could realistically double your money over the next five years. Here's how.
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Blocking and tackling
Football coaches sometimes describe the key to their team's success as focusing on blocking and tackling. The idea is that players simply have to execute well to win. I think that's the main thing that Vertex has to do to produce a win for its shareholders over the next few years.
The company estimates that there are around 83,000 individuals with cystic fibrosis (CF) in the U.S., Europe, Australia, and Canada. Vertex's four approved CF drugs currently treat around half of them.
These approved therapies could benefit another 30,000 CF patients. Chief commercial officer Stuart Arbuckle said on Vertex's Q2 conference call that "We remain confident we will be able to reach the vast majority of these patients."
How can Vertex add most of these 30,000 patients? To use the football metaphor, by blocking and tackling. The company already has regulatory approvals and reimbursements in several key markets where its commercial launches are just starting. If it executes well in these markets, Vertex will pick up significant additional market share.
The company also continues to work to secure reimbursement deals in other European Union countries where it already has regulatory approval. It's probably only a matter of time before those agreements are finalized.
Finally, Vertex must gain additional regulatory approvals for its newest CF drug, called Trikafta in the U.S. and Kaftrio in Europe, in younger age groups. The company was successful in the past in winning approvals for Kalydeco and Orkambi. It should be able to do so with Trikafta/Kaftrio as well.
Pipeline possibilities
Investors know that Vertex will almost certainly continue to dominate the CF market. The biotech stock has fallen this year, though, because of concerns about its pipeline -- especially with another setback in June for the company's alpha-1 antitrypsin deficiency (AATD) program.
But I think that Vertex's pipeline could be key to driving the stock at least 100% higher over the next five years. Most importantly, Vertex and its partner, CRISPR Therapeutics, hope to file for regulatory approval of gene-editing therapy CTX001 in treating beta-thalassemia and sickle cell disease within the next 18 to 24 months.
The company has other potential catalysts that could come even sooner. Vertex should report results later this year from a phase 2 study of VX-147 in treating APOL1-mediated focal segmental glomerulosclerosis, a genetic kidney disorder. Results are expected in early 2022 from a phase 2 study of VX-548 in treating acute pain following bunionectomy surgery.
There's also a possibility that an earlier-stage program could get investors excited about Vertex. The company should announce initial results next year from a phase 1/2 study of cell therapy VX-880 in treating type 1 diabetes. CEO Reshma Kewalramani sounded optimistic about the program in her comments during Vertex's Q2 call.
Double trouble?
To be sure, Vertex isn't a slam dunk to double your money over the next five years. It's possible that AbbVie, Galapagos, and/or Eloxx Pharmaceuticals could achieve success with their CF candidates currently in phase 2 testing, and present a threat to Vertex's monopoly. The company could experience more pipeline failures.
I'm not too worried about Vertex's competitive position, though. Vertex has a big head start over potential rivals. The company also isn't resting on its laurels: It has another late-stage CF candidate that could be even better than Trikafta/Kaftrio.
On the other hand, I do think that it's possible Vertex could have additional pipeline setbacks. The company doesn't need all of its candidates to be successful, however. Only one or two wins would set Vertex up to expand beyond CF in a major way.
Don't overlook Vertex's growing cash stockpile. The company could (and probably will) put some of its money to use by bolstering its pipeline. My view is that this gives Vertex a powerful wild card that improves the odds of its stock doubling over the next five years.
