Equity markets are deep in the red for the year, and so is the broader biotech industry. But some drugmakers have delivered solid performances over the past 10 months. That's the case with Vertex Pharmaceuticals (VRTX -0.76%) and Incyte (INCY -1.08%).
Both companies have a lot left in their growth tanks, and despite beating the market this year, still look like solid buys. Let's consider why both could maintain their momentum over the next five years and beyond.
1. Vertex Pharmaceuticals
Vertex Pharmaceuticals is living proof that drugmakers do not necessarily need a diversified and deep lineup to be successful. Over the past decade, it has consistently grown its revenue, earnings, and share price thanks to a handful of medicines approved to treat the underlying causes of a rare illness called cystic fibrosis (CF).
Here's the catch: Vertex holds a monopoly in this area. With no one to compete with, the biotech can still make some headway into this market, with roughly 83,000 people in the U.S., Canada, Europe, and Australia. About 25,000 patients eligible for its medicines remain untreated -- that's not an insignificant number.
Vertex's revenue jumped by 18% year over year to $2.33 billion in the third quarter. The company's adjusted net income came in at about $1 billion, 14% higher than the year-ago period. Vertex Pharmaceuticals can continue recording solid financial results for a few years with its CF franchise alone.
However, the company is looking to expand its lineup. Its next launch will probably be exa-cel, a gene-editing therapy for sickle cell disease (SCD) and transfusion-dependent beta-thalassemia (TDT), which are rare blood diseases. Vertex partnered with CRISPR Therapeutics on these programs.
The two entities plan to complete regulatory submissions for exa-cel in Europe and the U.S. by the end of the year and in the first quarter of 2023, respectively. How large is the target market here? Vertex will initially focus on about 32,000 patients with severe forms of SCD or TDT in the U.S. and Europe.
Gene-editing treatments are among the most expensive in the world. Several go for well over $1 million. We can expect exa-cel to charge a hefty price above $100,000 per treatment course, at the very least. As a one-time curative therapy for SCD and TDT that has delivered solid results in clinical trials, exa-cel has the potential to generate well over $1 billion in annual sales at its peak.
Vertex Pharmaceuticals has several other candidates. Its targets include acute pain, type 1 diabetes, and more. With an existing franchise still performing well and several exciting pipeline programs, Vertex Pharmaceuticals looks like a solid buy for biotech investors.
2. Incyte
Incyte is best known for its crown jewel, Jakafi, which treats a form of bone marrow cancer. The biotech generates much of its revenue from this drug. This lack of diversification hasn't been a death sentence for Incyte. One reason why is that Jakafi has earned several label expansions, most recently in September 2021, when it was approved as a treatment for chronic graft-versus-host disease, a condition that sometimes occurs following a bone marrow transplant.
Jakafi has also earned approval for other products. It expanded Jakafi's patent exclusivity by developing a topical formulation called Opzelura. This medicine first earned approval in September 2021 as a treatment for atopic dermatitis. Earlier this year, it won a label expansion in treating vitiligo.
Incyte's lineup also includes cancer medicines Iclusig, Pemazyre, and Monjuvi. The last two first got the green light in 2020.
How did Incyte perform in the third quarter? Not so well. The company's total revenue increased by a meager 1% year over year to $823.3 million. However, it's essential to put things in perspective. Incyte generates royalty revenue from some of its products. For instance, pharma giant Novartis markets Jakafi in Europe (as Jakavi) and pays royalties to Incyte.
The strengthening of the U.S. dollar had a negative impact on the value of the sales of products generated in Europe and elsewhere. There is also the fact that Incyte's Olumiant -- marketed by Eli Lilly -- lost ground as a result of lower COVID-19-related sales. Note that Incyte's total net product revenue, which does not include royalties, increased by 20% year over year to $713 million.
All these unfavorable currency and coronavirus-related dynamics aside, Incyte should continue to perform well thanks to its rejuvenated lineup and the various programs it is working on. The company boasts 25 candidates in its pipeline. Expect Incyte to deliver solid returns as it continues to innovate.
