The past two years have brought stock market investors great gains. The S&P 500 rose 47% over that time period, while the Dow Jones Industrial Average increased 27%. That's even as the pandemic worsened and worries about the economy multiplied. Today, the pandemic isn't over. And inflation is raging.
But the stock market isn't automatically extending the gains we've seen in recent times. Instead, it's taking a pause. This doesn't mean it's time to flee, however. The stock market has always recovered. So now is the time for long-term investors to hold on to companies they believe in -- and even open new positions in stocks that have what it takes to perform over time. A great example is Vertex Pharmaceuticals (VRTX -0.77%). And here's why this bargain biotech is a smart buy now.
Image source: Getty Images.
A market leader
First, it's important to look at Vertex's financial health and what could drive revenue and profit. The biotech company is the leader in the cystic fibrosis (CF) market. And Vertex predicts that will continue until at least the late 2030s. The company sells CFTR (cystic fibrosis transmembrane conductance regulator) modulators. CF is caused by mutations in the CFTR gene -- and that leads to the production of a faulty protein. CFTR modulators help restore this protein's function.
Right now, Vertex's drug Trikafta dominates the market. The blockbuster brought in $5.7 billion for the company last year. It makes up 75% of Vertex's revenue. Vertex reported $2.3 billion in profit in 2021. And it predicts $8.4 billion to $8.6 billion in product revenue this year. That's up from $7.6 billion last year.
But growth isn't over. Vertex says about 25,000 more patients could be treated by Trikafta. These patients are in countries where the drug recently received reimbursement or hasn't yet received reimbursement. And this group also includes younger patients -- Vertex can make progress here through label expansions.
Is there an even better drug than Trikafta on the way? There might be. But it doesn't represent a threat to Vertex. That's because it's Vertex's own candidate -- a triple combination, once daily treatment. This candidate -- VX-121/tezacaftor/VX-561 -- is involved in two phase 3 studies comparing it to Trikafta.
A smart buy now
So, it's clear Vertex is a powerhouse in the area of CF. But some investors have worried about Vertex's ability to grow beyond that specialty. And here's the reason Vertex is a smart buy now: It may be on its way to proving it can indeed reach the finish line in other areas too. The company recently completed enrollment in a pivotal trial of its one-time curative treatment for blood disorders.
CTX001 has already produced positive trial results in sickle cell disease and beta thalassemia. Vertex plans on reporting further data later in the year -- and aims to file for regulatory approval by the end of the year. Analysts have predicted annual sales of $1.3 billion to $1.5 billion.
Vertex refers to other clinical programs as "multibillion-dollar" opportunities too. For instance, the company has launched a phase 1/2 study of an investigational treatment for type 1 diabetes (T1D). About nine million people worldwide have T1D, according to the World Health Organization.
The company also is progressing with a candidate for APOL1-mediated kidney disease. Vertex aims to start a pivotal trial in the first quarter of this year.
So, this year could represent a positive turning point for Vertex if all goes well in clinical trials. That's because it may represent the start of Vertex's growth beyond CF.
A dirt cheap valuation
This is a good reason to get in on the Vertex story now. But what makes this move even better is the stock's dirt cheap valuation. The market sanctioned the stock back in 2020 after the failure of a candidate in clinical trials. Since, the shares have had difficulty making a comeback. Investors were looking for clear signs that Vertex could indeed expand into other treatment areas.
As a result, Vertex shares are now trading for only 16 times forward earnings estimates. That's compared to more than 28 before the stock's big decline.
VRTX PE Ratio (Forward) data by YCharts
Another positive point is Vertex's cash level. The company's cash and equivalents topped $7.5 billion as of Dec. 31, up by about $900 million year over year. That's even as Vertex repurchased shares and made a $900 million payment to partner CRISPR Therapeutics.
So, Vertex is financially healthy, generating blockbuster revenue from its main business, and may be close to making a mark in other treatment areas. Whether market turmoil continues or not, Vertex's prospects look bright over the long term -- and that means its investors may reap rewards down the road.
