Vertex Pharmaceuticals (VRTX 1.25%) has beaten the bear market by far this year: The stock is heading for a 30% gain. But this isn't just a stroke of good luck. Investors are recognizing the biotech's billion-dollar revenue -- and potential for even more on the horizon.
Vertex is the global leader in the cystic fibrosis (CF) treatment market. And it's broadening its therapeutic reach into other areas including blood disorders, pain management, and type 1 diabetes. But has all of this year's enthusiasm made Vertex too expensive today? Or is the stock still a buy?
Billions of dollars in annual revenue
First, a bit of background on the main CF business. Vertex sells four CF drugs. The newest, Trikafta, is able to help 90% of patients with cystic fibrosis. It's won approvals and reimbursements in various countries since it was first approved back in 2019. But growth should continue as additional countries agree to reimbursements, and regulators approve it for younger age groups. Trikafta generated $5.6 billion in revenue for Vertex last year.
However, there may be a better treatment than Trikafta on the horizon -- and the good news is that Vertex is the one developing it. This treatment -- once daily rather than twice daily like Trikafta -- is involved in phase 3 trials at the moment.
Now, you may be wondering about the 10% of patients who can't be treated with Trikafta. Vertex is working on that too. With partner Moderna, it just received approval to launch clinical trials of a candidate to treat those patients: an inhaled mRNA treatment that teaches the body to produce a particular protein. Vertex and Moderna aim to launch clinical trials in the next few weeks.
But it's news beyond the CF program that has driven Vertex's share gains. The company and partner CRISPR Therapeutics are submitting exa-cel, their treatment for the blood disorders beta thalassemia and sickle cell disease, to regulators in the U.S., the U.K., and Europe.
Here's why this treatment could be big for Vertex. First, it would show that the company can indeed succeed beyond its specialty of CF. Second, it could generate blockbuster revenue. That's because today, treatment options are limited for beta thalassemia and sickle cell disease. And exa-cel is designed as a one-time curative treatment. We can imagine doctors and patients flocking to such a product.
Vertex also will take in the lion's share of profits, keeping 60%, while CRISPR Therapeutics will keep 40%.
Potential products down the road
Earlier I mentioned candidates for pain management and type 1 diabetes. They are in phase 3 and phase 1/2 studies, respectively. These, too, could become major products for Vertex down the road.
Now, let's get back to our original question: Is Vertex a buy? Even considering this year's gains, it still trades for less than 20 times forward earnings estimates. At the same time, Trikafta sales keep climbing -- and, as mentioned above, there's opportunity for more Trikafta growth ahead. There's also reason to be optimistic about exa-cel winning regulatory approval; clinical trial data have been strong. If regulators offer exa-cel a nod, we're looking at another big revenue driver in the near term and beyond.
All of this means that even after this year's share-price increase, I believe Vertex is a buy -- and one that, thanks to a strong product lineup, should deliver growth to your investment portfolio over the long term.
