The Best Biotech Stock on the Market Right Now

Pick nearly any category. You're likely to find differing views about who or what is the best in that category. One person's pick for the best often isn't the next person's choice.

I readily acknowledge this when it comes to selecting the best biotech stock. Different investors could nominate different worthy candidates. But my vote for the best biotech stock on the market right now goes to Vertex Pharmaceuticals (VRTX -0.06%). And it's not even a close contest.

A winner in the midst of losers

No stock should even be a contender as the best biotech stock on the market right now if it isn't at least delivering positive returns, in my view. Close to 750 biotech stocks trade on the major U.S. stock exchanges. Only 50 of them are in positive territory over the past 12 months. Of those, only 25 have jumped 20% or more.

Vertex is a big winner in the midst of a lot of losers. Shares of the biotech have soared close to 50% over the past 12 months. The stock is up more than 30% so far this year.

But stock performance is only one factor to consider. I also think that the best biotech stocks will have great underlying businesses. At a minimum, the company should have growing sales and profits. These criteria eliminate all but six biotech stocks from consideration. Vertex again makes the cut.

The durability of revenue and earnings growth is also important in my book. Only three of the surviving biotechs on our whittled-down list have been able to generate positive top- and bottom-line growth on a per-share basis over the past five years -- Siga Technologies, United Therapeutics, and Vertex. 

Vertex's rare advantage

There's one key drawback with the methodology I've used thus far: It focuses only on the past. Just because a biotech stock has delivered solid gains along with strong underlying revenue and earnings growth previously doesn't mean that it can continue to do so.

However, Vertex appears to be in an exceptionally great position to keep up its winning ways. Why? Because the company has a rare advantage that very few biotechs can claim -- a rock-solid moat.

Four drugs have been approved in the U.S. and Europe for treating the underlying cause of cystic fibrosis (CF); Vertex makes all of them. Sure, there are a few other companies hoping to one day compete against Vertex in the CF market. But none of them have made it past phase 2 clinical studies yet. Most of the would-be rivals are only in preclinical testing. 

Vertex doesn't have to worry much about losing patent exclusivity, either. The patents for its best-selling CF drug, Trikafta/Kaftrio, don't expire until 2037.

This moat puts Vertex in an enviable position. The company's current CF therapies are used by a little over half of the 83,000 patients in the U.S., Europe, Australia, and Canada. All Vertex needs to do to grow its market by more than 50% is to secure more reimbursement deals and win regulatory label expansions for younger age groups. And it continues to make progress on both fronts.

There are more than 5,000 CF patients for whom Vertex's current therapies can't help. The company is working hard to develop new drugs to treat those patients, too. Vertex and its partner, Moderna, hope to request approval later this year to advance a messenger RNA therapy into clinical testing that could help the remaining CF patients.

A quiver full of arrows

I'm probably going to sound like an infomercial here, but wait... there's more! Vertex's growth prospects aren't limited to CF. The company's pipeline is like a quiver full of arrows.

Vertex and CRISPR Therapeutics expect to file for regulatory approvals of exa-cel (CTX001) later this year in treating sickle cell disease and transfusion-dependent beta-thalassemia. "Treating" is actually not a strong enough term. Exa-cel could be a one-time cure for the rare blood disorders. 

In March, Vertex advanced VX-147 into late-stage testing for treating APOL1-mediated kidney disease. This indication presents a bigger patient population for the company to target than CF does. 

Another program should move into late-stage testing soon. Vertex expects to begin phase 3 testing of experimental non-opioid paid drug VX-548 in the second half of 2022. 

In addition, Vertex believes that it will be able to cure type 1 diabetes in the not-too-distant future. The company already has one cell therapy in early stage testing and hopes to file for later this year for approval to advance another program into clinical studies.

Hands-down the best

As icing on the cake, Vertex's shares trade at a price-to-earnings-to-growth (PEG) ratio of only 0.40. That's a dirt cheap valuation.

I don't think you'll find another biotech stock that's delivering impressive gains along with strong revenue and earnings growth plus has a solid moat, tremendous optionality with its pipeline, and an attractive price tag. In my opinion, Vertex is hands-down the best biotech stock. It's also one of my highest-conviction growth stocks right now.