Investors have been taking money out of growth stocks recently in recognition that rising interest rates in the U.S. will likely sap some value from those companies' future profits. Year to date, the tech-heavy Nasdaq Composite index is down about 10% while the broader S&P 500 is off around 5%.
In volatile times like these, it is wise to purchase securities that are likely to continue to perform well long after the dust has settled. Vertex Pharmaceuticals (VRTX -0.32%) fits that description -- a solid growth stock that still boasts excellent long-term prospects despite recent struggles.
Recent financial results
Vertex's difficulties predate the stock market's recent issues. In late 2020, the company had an R&D setback. In a clinical trial for VX-814, its candidate therapy for the rare genetic condition alpha-1 antitrypsin deficiency, researchers determined that the treatment was not safe for human use. As such, it had to end the trial and abandon development of VX-814. That news sent Vertex Pharmaceuticals' stock crashing.
Investors have also been worried about the biotech's dependence on its cystic fibrosis franchise. While the company holds a monopoly in the market for drugs that treat the underlying causes of this illness, it doesn't have any approved medicines on the market for any other conditions.
Thankfully for its shareholders, sales of Vertex's cystic fibrosis medicines are far from peaking. During the fourth quarter, it generated $2.1 billion in revenue, 27% higher than the year-ago period. Vertex's net income for the quarter rose 27% year over year to $770 million.
Leading the charge for the biotech was Trikafta, a combination therapy approved to treat up to 90% of cystic fibrosis patients. Its sales clocked in at $1.7 billion, 55% higher than the prior-year quarter. Trikafta won't lose patent protection until well into the 2030s, so Vertex will not have to worry about generic competition for its most important product anytime soon.
So Vertex is in a strong position, but there are more reasons to be optimistic about the company's future.
Image source: Getty Images.
In it for the long haul
Vertex estimates that of the 83,000 patients with cystic fibrosis in North America, Europe, and Australia, there are more than 25,000 who could benefit from its therapies but remain untreated. There is also a small subset of cystic fibrosis patients in these markets with variants of the disease that can't be effectively treated with any of Vertex's currently-approved therapies. However, the company is enrolling patients in a phase 3 clinical trial for a combination therapy of one of the company's existing CF treatments, tezacaftor, and two new candidates -- VX-121 and VX-561 -- that could address the needs of many of those remaining patients.
But Vertex has other promising pipeline candidates as well. For instance, in collaboration with CRISPR Therapeutics, the company is developing CTX001 -- a one-time treatment for transfusion-dependent beta-thalassemia and sickle cell disease. There are few effective therapies for either of these blood-related diseases. CTX001 is a gene-editing treatment that it is hoped will provide a functional cure for them. Vertex Pharmaceuticals plans to submit CTX001 to health regulators for approval by the end of the year.
Also in clinical trials are VX-548, a potential treatment for acute pain, and VX-880, an investigational therapy for type 1 diabetes. Investors should expect several data readouts for these candidates this year, and positive results could serve as catalysts to send Vertex's stock price higher. More importantly, the company is inching closer to new approvals -- probably within the next couple of years -- that would strengthen its lineup and drive significant top-line growth.
Vertex Pharmaceuticals ended 2021 with $7.5 billion in cash and cash equivalents, up 13% from a year ago. With such a robust cash hoard, it could go shopping around for new and exciting pipeline candidates, especially if some of its current programs flop. At any rate, the biotech looks focused on setting itself up for long-term success.
Vertex's shares currently trade at 17.1 times forward earnings. That's a higher valuation than the biotech industry's average multiple of 11. But it has gotten a lot cheaper in the past year. In my view, this biotech is worth the premium.
