Big pharmaceutical companies haven't had to worry about negotiating drug prices with the U.S. government as they do in Europe and other parts of the world. That's almost certainly about to change.

The U.S. Senate passed the Inflation Reduction Act of 2022 last week. There's a lot in this legislation, including a provision that will allow Medicare to directly negotiate the prices of the costliest drugs. The U.S. House of Representatives is expected to vote in favor of the bill later this week. President Joe Biden has already stated that he's ready to sign it into law.

A major upheaval for big pharma is probably coming soon. But there's one stock that's poised to skyrocket, anyway.

No danger ahead

Vertex Pharmaceuticals (VRTX -0.57%) doesn't appear to have any danger ahead with the potential implementation of Medicare drug pricing changes. There's a simple reason why that's the case.

The Inflation Reduction Act will authorize Medicare to negotiate only for a limited number of drugs for which the program spends the most. The number of drugs included will start out at 10 beginning in 2026 and gradually increase to 20 by 2029.

None of Vertex's approved drugs rank in the top 20 in spending for either Medicare Part B or Medicare Part D, based on the most recently available data. The company's top-selling drug, Trikafta, barely ranks in the top 90 for Medicare Part D and didn't even make the list at all for Medicare Part B.

It isn't likely that this will change anytime soon. Vertex's current drugs target cystic fibrosis (CF), a rare genetic disease that impacts relatively few senior adults. 

What's potentially on the way

Just because Vertex will likely avoid the negative impact of Medicare drug pricing changes doesn't mean the biotech stock is going to take off. However, Vertex is already trouncing the market this year, with its shares soaring over 35%. That momentum could continue.

The company's CF franchise should be able to gain market share relatively easily. Vertex estimates that a little over half of CF patients already use its therapies. It thinks the percentage can grow to more than 90% by securing additional reimbursement deals and expanding approvals to younger age groups. Competition shouldn't be an issue: There aren't any other approved drugs that treat the underlying cause of CF.

Vertex and CRISPR Therapeutics expect to file for European approvals for exa-cel in treating sickle cell disease and transfusion-dependent beta-thalassemia by the end of this year. The two partners are also in discussions with the U.S. Food and Drug Administration (FDA) about moving forward with regulatory filings. 

In addition, Vertex has two other programs either in or soon to be in late-stage development. Inaxaplin (VX-147) targets APOL1-mediated kidney disease, a rare genetic disease with no approved therapies and a larger patient population than CF has. VX-548 could have a significant opportunity as a non-opioid treatment for acute pain, if all goes well in phase 3 testing.

Vertex believes that exa-cel, inaxaplin, and VX-548 each have the potential to generate at least $2 billion in sales, if approved. The big biotech also thinks that its early-stage type 1 diabetes program could lead to a cure for the disease that affects around 20 million people worldwide.  

A positive kind of upheaval

Perhaps Vertex will one day have a drug on Medicare's top 20 list and be forced to negotiate pricing with the federal program. If so, though, that would be good news for the company because it would mean that Vertex has achieved tremendous success outside of CF.

In the meantime, the company continues to deliver consistently strong growth. It has a promising pipeline. And the stock is attractively valued with a price-to-earnings-to-growth (PEG) ratio of only 0.42. While big pharma could have a big upheaval on the way with Medicare changes, Vertex seems on track to generate big gains for investors.