Biotechnology company Vertex Pharmaceuticals (VRTX 1.00%) carved a name for itself in cystic fibrosis but has been slow to diversify into other diseases. That finally looks about to change as the company is on the verge of entering several new markets and dramatically expanding its total addressable patient population.
Vertex sets high bar in cystic fibrosis
Vertex is the undisputed leader in the cystic fibrosis field, offering a suite of four treatments, including top-selling megablockbuster drug Trikafta. With patent protection extending to 2037 and no other competitors in the market, Trikafta enjoys an enviable economic moat.
Potential competitor AbbVie gifted Vertex several more years of market dominance when it decided to scrap its phase 2 trial of a combination drug because it did not meet pre-determined criteria at the interim analysis. Instead, it will replace one of the active components and initiate a new Phase 2 trial next year. At the moment, Vertex's own next-generation, combination drug -- now in Phase 3 trials -- looks to become Trikafta's primary competitor.
Vertex's existing cystic fibrosis products have already been rapidly adopted by the U.S. market, but there is still plenty of room for growth. The company is looking to expand the label to treat younger children, and developing a new mRNA treatment for a subset of patients whose condition isn't addressed by Trikafta. All told, management estimates that 83,000 patients suffer from cystic fibrosis across the US, Europe, Australia, and Canada, and at least 30,000 of those remain untreated.
Poised to treat new diseases
As dominant as Vertex's position looks in cystic fibrosis, several new pipeline candidates are even more exciting. Blood disorder treatment Exa-Cel is closest to fruition, and Vertex claims that its gene-editing treatment has the potential to "functionally cure" 31 patients with sickle cell disease in its study. Approval for this indication would be a major prize, as 25,000 people in the U.S. and Europe suffer from severe sickle cell disease, and the global market is expected to grow 19% annually to be worth $7.7 billion by 2027.
Trials in beta thalassemia are also underway although this market is smaller with only 7,000 people in the US and Europe. Vertex could capture 60% of net sales from these two markets, sharing the rest with partner CRISPR Therapeutics.
Meanwhile, pipeline candidate VX-147 is in a phase 3 trial targeting a genetic kidney disease caused by two mutations in the APOL-1 gene. The disease affects 100,000 in the U.S. and Europe, which is about 20% larger than the cystic fibrosis market, and this is another underserved market. The company initiated its pivotal clinical trial last March, and it may seek an accelerated approval from regulators if the 48-week interim analysis looks promising.
The largest-volume market, by far, in Vertex's sights is non-opioid pain medication VX-548. The CDC estimates there are over 75,000 overdose deaths in the U.S. annually from opioids, and VX-548 has the potential to be a safer pain-management option that removes the threat of addiction.
Management states that the U.S. market alone has more than 1.5 billion treatment days annually for acute pain, which calculates out to more than four million doses of pain medication administered each day. Following phase 2 results in March, Vertex plans to advance to pivotal trials later this year.
On the cusp of major growth
Even as a single-disease company, Vertex achieved positive cash flow of $2.6 billion in 2021. Revenue for the year was $7.6 billion, and management expects this number to grow to about $8.5 billion in 2022.
But Vertex's total addressable market of 83,000 in 2022 for cystic fibrosis may jump to over 215,000 in 2023 if the company gains approval for beta-thalassemia, sickle cell disease, and kidney disease. The company does face competition in blood disorders from Bluebird Bio's gene therapy program, with the FDA likely to approve its beti-cel for beta thalassemia by August, as well as several treatments already on the market, but these diseases still need more effective therapies.
At its current price-to-earning ratio of 31, Vertex is pricier than other large biotech companies such as Gilead, Regeneron, or Moderna. But the company offers higher near-term growth prospects and diversified technology that includes small molecule, mRNA, and gene-editing treatments. For investors interested in gene-editing stocks, its partnership with CRISPR Therapeutics offers exposure at far lower risk. And for investors seeking a major biotech player, Vertex starts to look like a truly solid, long-term investment as it finally branches into new diseases.