With a market capitalization of nearly $72 billion, Boston-based Vertex Pharmaceuticals (VRTX 1.67%) is one of the world's biggest biopharma businesses. Yet, there's an incredibly small chance that you or anyone you've ever encountered has ever been treated with any of its drugs. Thanks to its focus on rare diseases like cystic fibrosis (CF), its medicines are the opposite of popular, by definition.

And for the company's investors, that focus has been a successful strategy with its total return rising by more than 141% since April 2017, handily beating the market's return of around 104%. Moving forward, however, things are likely to play out a bit differently -- here's how.

A scientist gestures to a drawing on a whiteboard while in the laboratory with a colleague.

Image source: Getty Images.

Will the diversification efforts pay off?

Vertex's claim to fame is its mastery of the cystic fibrosis therapies market, which it corners via its four approved drugs. In 2021, the business made $7.5 billion in sales of its CF drugs, and over the last three years its revenue rose by 81.9% while net income expanded by 99%.

Cystic fibrosis is a rare disease with only an estimated 83,000 patients across North America, the E.U., and Australia. Per the company's estimates, a mere 25,000 of those patients are eligible but unenrolled for treatment with its latest therapy called Trikafta, along with perhaps an additional 5,000 who could be treated by candidates currently in the early stages of the pipeline. And many of the eligible but unenrolled are already being treated with older Vertex products.

In other words, Vertex has done a powerful humanitarian service to the community of people living with CF by reaching nearly everyone with its therapies. However, as a result, the market is approaching full penetration. Making further inroads will yield increasingly lower returns for the same effort, which means that it's time to diversify.

To seed future growth, Vertex is launching new pipeline programs in areas like pain, diabetes, and rare diseases like beta thalassemia and sickle cell disease. A few of these programs are in late-stage clinical development, which means they might be hitting the market sometime in the next five years, assuming they get regulatory approval. In the meantime, investors should expect the company to be spending more and more on research and development (R&D).

On that note, consider the following:

VRTX Research and Development Expense (Annual) Chart

VRTX Research and Development Expense (Annual) data by YCharts.

If we look at the pace of the R&D budget growth over the last five years and compare it to 2021's R&D expenses, we can estimate that in April 2027, Vertex will be spending something upwards of $3.7 billion per year on its pipeline, which will be its most ever -- assuming that R&D expenses remain largely the same proportion of annual revenue.

Expect financial strength to keep growing

As a mature pharmaceutical company, Vertex might be expected to show slower growth over the next five years, regardless of any attempt to diversify. After all, highly diversified pharmas like Merck and Sanofi only expanded their annual revenues by around 21% and 13%, respectively, over the past five years.

In such low-growth situations, management often opts to return capital to shareholders as they may get a higher rate of return elsewhere than what the company is able to achieve.

Still, investors probably shouldn't expect Vertex to start paying a dividend anytime soon. Nor should they expect growth to be as slow as with other major pharma stocks. Here's one reason why:

VRTX Cash and Short Term Investments (Annual) Chart

VRTX Cash and Short Term Investments (Annual) data by YCharts.

In short, management prefers to spend at least some of its ever-increasing war chest of cash on its share repurchasing program rather than a dividend. That gives it the flexibility to continue accruing retained earnings over time as fuel for further investments in R&D or acquisitions without being obligated to give away capital to shareholders unless the time is right.

The current projects outside of CF won't be the last

Investors should also expect that the company's early-stage pipeline will be filled out with more candidates over the next five years, some of which may proceed to mid-stage trials. No matter which markets the therapies-in-development aim to treat, Vertex will be a far more formidable business for its efforts in the coming years.

If the newer pipeline programs outside of CF do get approved, it'll mark the start of Vertex's expansion into a more broadly based pharmaceutical company, and it'll also mean a lot more revenue rolling in. If the approvals don't materialize, it'll still have its revenue from CF therapies to fall back on while it regroups to try again.