For a company like Vertex Pharmaceuticals (VRTX -0.76%), 10 years isn't a long time. The drug-development process takes between 12 and 14 years, on average, around 8 years of which are devoted to clinical-stage testing and the regulatory-review process. That means the Vertex of today could well be an entirely different business in a decade's time, which can make it hard to plan for making a long-term investment.
Luckily, with a little bit of diligence, we can map out roughly where a drug company is trying to go, and we can even make a few solid predictions about how successful it'll be in those attempts, so that you can judge whether it might be a worthy addition to your portfolio. Let's dive in and see what the future could look like for this innovative drug developer.
Expect its drug portfolio to more than double
Our starting point for projecting Vertex's future is the reasonable assumption that at least some of its early-stage clinical programs will make it to the market and generate fresh revenue by 2032. It might even commercialize some of its more advanced pre-clinical projects, too.
Right now, Vertex has six drugs on the market, which took in $7.5 billion of revenue in 2021. All of them target cystic fibrosis (CF), a rare, inherited pulmonary disease that makes it very difficult for people to breathe due to problems with the fluids in their lungs. Sales of CF therapies have powered the company's net income, which grew some 1,140% over the last five years. Now, management has its sights set on entering other therapy markets to diversify.
Looking at its pipeline, there are 18 programs which have a credible chance of being commercialized over the next 10 years. These run the gamut of indications, and the company will almost certainly succeed in diversifying outside of CF, perhaps by advancing its candidates for sickle cell disease, APOL1-mediated kidney disease, or pain relief. But it's impossible to tell which of its candidates will be proven safe and effective and which will get canned after lackluster results.
Luckily, with some information about clinical-trial success rates and a little bit of math, we can make some predictions about roughly how many new medicines to expect by our target date. On average, 20.9% of pharmaceutical projects in phase 1 clinical trials for indications outside of oncology will eventually go on to be commercialized, whereas future success rates are as high as 55.7% for phase 2 projects and 63.6% for those in phase 3.
Therefore, Vertex will likely be able to commercialize three or four of its programs that are currently in phase 3, but it's a toss-up as to whether it'll manage to get its lone phase 2 program out the door. Likewise, of its six candidates in phase 1, investors should only expect one to make it to the market, though there is a distant chance for two.
In total, the company could reasonably be expected to have five new medicines for sale by 2032. It's impossible to say precisely how much money those new medicines would be worth annually, but it's not hyperbolic to predict at least several billions of dollars in new revenue.
What's more, some of the new drugs are being developed for indications like acute pain and type 1 diabetes, both of which have vastly larger markets than CF therapies. The actual amount of growth that investors will see depends on which medicines Vertex succeeds in commercializing and whether there's a significant amount of competition for market share with each, but the chances are very good that the business will multiply in value by at least a few times.
Expect CF medicines to remain a cornerstone
In the meantime, Vertex's revenue from its CF therapies is unlikely to decline by much. Patients don't have any other options for treatment, and the company's ability to remix its existing CF medicines into more potent (and more convenient) combinations should ensure that patients' needs continue to be met more effectively over time, as shown by the success of its numerous combination-therapy drugs for CF.
So Vertex's future looks quite bright, and in 10 years it should be a much larger and more diversified business, which means it'll also be somewhat lower risk as an investment than it is today. Plus, our forecast of progress in its drug pipeline entails the very high chance of numerous stumbles in clinical trials along the way.
For an investor looking to start a position in the stock, a sub-optimal clinical-trial outcome is an opportunity to buy shares while prices are less than usual. But for those who would prefer not to wait, the stock is ripe for purchasing today for a long-term hold, provided that you have the fortitude to continue holding your shares through the bumpy patches of the drug-development process.
