Biotech is undoubtedly in a bear market. The SPDR S&P Biotech ETF and the iShares Biotechnology ETF are both down by more than 20% for the year at the time of this writing. The space has wilted this year under the combined weight of rising interest rates, geopolitical turmoil, and a fair amount of profit-taking following banner years for the industry in both 2020 and 2021. Given that biotech is still in the midst of an innovation bonanza, investors would be remiss if they avoided this group of equities altogether, however.

Vertex Pharmaceuticals (VRTX 2.57%), for example, has had little trouble shrugging off this bear market. In fact, the rare-disease giant's share price has surged by a healthy 28% since the start of 2022. And with a handful of important catalysts on the horizon, Vertex's shares probably haven't topped out yet. Here's why this top biotech innovator is the industry's best stock to buy in September.

A scientist working in a lab.

Image Source: Getty Images.

Vertex's near-term value drivers

Vertex's stock has been booming of late mainly because of its high-growth cystic fibrosis franchise. Thanks to a strong launch for the triple combination therapy Trikafta/Kaftrio, Vertex's cystic fibrosis revenue is slated to hit a record high of $8.7 billion in 2022. The drugmaker's top line is thus on track to rise by approximately 15% year over year in 2022.

Moreover, Wall Street expects this strong revenue growth to continue into 2023, with the company's top line forecast to rise by another 6.9% next year. Perhaps the best part is that Vertex's rock-solid intellectual property in this realm ought to allow it to dominate this large and growing rare-disease market until at least 2037.

Vertex isn't a one-trick pony, however. The company's blood-disorder collaboration with CRISPR Therapeutics (CRSP -4.76%) could yield the world's first-ever CRISPR-based medicine as soon as next year.

CRISPR and Vertex are on track to submit regulatory filings for exagamglogene autotemcel (formerly known as CTX001) as a one-time functional cure for transfusion-dependent beta thalassemia and sickle cell disease in both the U.K. and Europe by year's end. A normal review timeline would thus result in the therapy becoming commercially available in these territories by late 2023.

The two companies are also reportedly in talks with the U.S. Food and Drug Administration about a possible regulatory filing for exagamglogene autotemcel. If approved across these high-value commercial territories, Wall Street thinks this gene-edited therapy could generate nearly $3 billion in annual sales at peak.

Wall Street is sleeping on this key value driver

Based mainly on its cystic fibrosis franchise and commercial prospects from exagamglogene autotemcel, Wall Street believes Vertex's shares are fairly valued at $293 per share (implied upside potential of 4.27% relative to current levels).

Additionally, Wall Street thinks -- based on these same near-term value drivers -- that the biotech's stock could hit $307 a share within the next 12 months. This forward-looking price target implies an upside potential of 9.2% relative to where the stock is trading right now.

The mind-boggling part about these valuation estimates is that they largely ignore the deep value of Vertex's early-stage diabetes pipeline. Through twin acquisition deals for Semma Therapeutics and ViaCyte, Vertex now sports a suite of cutting-edge diabetes candidates. Key top-line data from this under-the-radar clinical program are expected out within the first half of 2023.

The big picture is that a one-and done functional cure for diabetes would represent a monstrous commercial opportunity for the biotech. Going one step further, sales from Vertex's diabetes medicines could dwarf those from its cystic fibrosis franchise by the end of the decade.

Now, Wall Street hasn't paid all that much attention to this early-stage clinical program thus far. But this situation could quickly change next year with the coming availability of intriguing human trial data. Investors, in turn, might want to get ahead of the curve on this potential catalyst -- especially in light of the fact that the market hasn't assigned much, if any, net present value to these experimental diabetes therapies.