Vertex Pharmaceuticals (VRTX 1.43%) stock climbed more than 31% last year even as the overall market touched bear territory. That's because something exciting brewing at Vertex caught the eye of investors. The company was about to submit a promising -- and potential blockbuster -- candidate to regulators.
Even better, an approval of exa-cel, a candidate for blood disorders, would prove that Vertex could indeed score a win outside its specialty area of cystic fibrosis (CF) treatment. Now, investors may wonder if the good news is priced into Vertex shares -- and if gains are over. But five words from Vertex's chief executive officer suggest there's a lot more ahead for the big biotech.
The Vertex story so far
First, though, a quick summary of Vertex's story so far: The company is the global leader in CF treatment. Its latest drug -- Trikafta -- helped Vertex generate $8.9 billion in product revenue and $3.3 billion in profit last year. This represents growth of 18% and 42%, respectively. The net income figure is on a GAAP basis. And 2022 was the company's eighth straight year of increasing revenue in the double digits.
Investors have worried, though, that Vertex is too dependent on its CF portfolio. That's why progress with exa-cel offered them confidence last year -- and therefore lifted the shares. If approved, exa-cel could become popular with doctors and patients, because right now options are limited for the particular blood disorders that it treats. And exa-cel is designed as a one-time curative treatment, which is a big plus too.
Some investors now may wonder if Vertex's share price momentum will slow after a potential approval of exa-cel. But this actually may be just the beginning.
So, what exactly did CEO Reshma Kewalramani say to make me so optimistic? Well, her words have to do with Vertex's potential revenue in the coming years.
Speaking of mid-stage and late-stage pipeline programs across eight disease areas, Kewalramani said that "each represents a multibillion-dollar market opportunity."
Five new products
And we might not have to wait a long time for the revenue to start pouring in. That's because Vertex aims to launch five new products into these disease areas in the coming five years. The company expects the first to be exa-cel, of course. Next up, Vertex is counting on a potential new CF drug that could beat Trikafta -- the candidate is involved in phase 3 studies right now.
These possible launches also include candidates for one of the world's most common problems: pain. Vertex's candidate is a nonopioid painkiller, and it may arrive at just the right time. This is as the U.S. aims to limit the prescription of opioids due to risk of addiction. A recently passed law -- Non-Opioids Prevent Addiction in the Nation Act -- could spur hospitals to favor nonopioid options.
Vertex's candidate for type 1 diabetes also may be a game changer. It's designed as a functional cure for yet another illness with limited treatment options.
With more than $10 billion in cash, Vertex has the financial strength needed to advance these programs -- and build out infrastructure for commercial launches. In fact, Vertex is already investing to prepare for that transition.
And Vertex has a track record of free cash flow and return on invested capital that's encouraging, too. These metrics have gained over time.
VRTX Free Cash Flow data by YCharts
All of this means there should be plenty of catalysts for Vertex's shares to move higher, at least over the coming five years. And revenue growth beyond that time, thanks to new products, could continue to drive price performance even farther down the road.
That's why today, Vertex shares, trading at less than 20 times forward earnings estimates, look dirt cheap. So, yes, some of the exa-cel good news may be baked into Vertex's price today -- but not all of it. And the current share price doesn't reflect the other candidates nearing the finish line. Kewalramani's words suggest this success story is in its early chapters -- and that makes Vertex a smart buy for long-term investors.
