Last year's bear market made many victims among even the most prominent corporations although growth stocks fared even worse than other categories of equities. But some growth-oriented companies managed to buck the trend. Among this small group of outperformers are two healthcare leaders: biotech giant Vertex Pharmaceuticals (VRTX 0.10%) and medical device expert DexCom (DXCM 0.33%).
These two stocks aren't one-hit wonders, either. There are good reasons why they performed as well as they did in 2022, and there are equally solid reasons to think they can produce similarly robust returns in the long run. Let's consider why Vertex Pharmaceuticals and DexCom are excellent stocks to buy.
1. Vertex Pharmaceuticals
Vertex Pharmaceuticals is entering an important stretch. Over the past 10 years, the company has generated growing revenue and earnings thanks to its medicines that treat cystic fibrosis (CF), a rare genetic condition. Now, the drugmaker looks to be on the verge of marketing a product in a different therapeutic area.
Last year, Vertex said it planned on submitting exa-cel to regulatory authorities in the U.S. and Europe by the end of the first quarter of 2023. Exa-cel is a potential gene-editing treatment that Vertex is developing with CRISPR Therapeutics for a duo of rare blood-related illnesses -- sickle cell disease and beta-thalassemia. Vertex could launch exa-cel early next year if all goes according to plan.
Vertex Pharmaceuticals is also set to make pipeline progress elsewhere. Consider the company's VX-548, a potential therapy for acute and neuropathic pain. Last year, Vertex said it would start a phase 3 study for this medicine in treating acute pain in Q4, although it hasn't officially announced the start of this trial.
Still, investors should expect a word or two from management regarding VX-548 pretty soon. Late last year, Vertex started a phase 2 study for VX-634 as a potential treatment for Alpha-1 antitrypsin deficiency. This inherited condition can lead to liver disease. Some of Vertex's other candidates target type 1 diabetes and APOL1-mediated kidney disease.
Vertex's programs are making meaningful clinical progress, and exa-cel is inching closer to approval. Together, they provide the company with multiple short-term catalysts that could boost its stock price. More importantly, they will help the drugmaker expand its line up of medicines and generate even stronger revenue and earnings growth for a long time before they run into patent cliffs, the dreaded obstacles that sometimes sink biotech companies.
Vertex's CF products are far from finished driving solid financial results. The company won't release its Q4 update for about another week, but we saw plenty more evidence of the resilience of Vertex's CF franchise throughout last year. In the first nine months of 2022, the company's revenue increased by 20.5% year over year to $6.6 billion, while its net income soared by 59.2% year over year to $2.5 billion.
Expect Vertex Pharmaceuticals to continue delivering similarly robust financial results as it strengthens its portfolio of drugs through new approvals. Having produced market-beating returns in the past, Vertex can likely do it again for investors willing to be patient.
2. DexCom
DexCom focuses on helping diabetes patients with its continuous glucose monitoring (CGM) devices that enable patients to take blood glucose measurements. The company today primarily markets its G6 CGM, but last year, it launched its next-gen device, the G7, in Europe. The G7 proved even more effective than the G6 in helping diabetes patients achieve excellent health outcomes.
DexCom's G7 was cleared in the U.S. in December, and the company will launch it this year. The DexCom ONE is another CGM device DexCom launched in Europe last year; it is a more affordable option that targets more price-sensitive patients. DexCom's newer devices will help it expand the pool of CGM patients, a demographic that is already growing.
The adoption of CGM technology is being driven by the fact that these devices continuously monitor blood glucose levels throughout the day, allowing diabetes patients to make better, healthier decisions. The blood glucose meters against which CGMs compete are limited in that they can only tell a person's blood glucose levels at a specific point during the day. The increased use of CGM has led to growing revenue for DexCom.
DXCM Revenue (Quarterly) data by YCharts
Furthermore, the company could soon benefit from a regulatory decision in the U.S. that would expand the pool of patients eligible for reimbursement by Medicare. The growing population of people with diabetes should also lead to a greater need for DexCom's devices. As a leader in CGM with a long history of developing newer and innovative products, DexCom looks set to remain at the forefront of efforts to combat this chronic illness -- and to handsomely reward its shareholders in the process.
