Investors who focus on long-term opportunities in the stock market look for well-established companies that are already profitable and have a track record of revenue growth. Two wildly different healthcare companies that both fit that description are Vertex Pharmaceuticals (VRTX -0.06%) and Medtronic (MDT -0.72%).
Vertex, a biopharmaceutical company founded in 1989, has improved annual revenue by 636% over the past decade. While it might be difficult for the biotech to continue that pace, its pipeline has the potential to easily drive growth for another decade.
Medtronic is a medical device company founded in 1949. Because of its large size, with more than 90,000 employees in 150 countries, it has seen less-meteoric annual revenue growth over the past 10 years -- roughly 83%.
Both companies' shares have outpaced the approximate 7% rise to start the year by the S&P 500, with Vertex up by more than 19% and Medtronic up by more than 14% so far in 2023.
Vertex: The best is yet to come
Vertex is a good example of a de-risked investment, as much as any such thing can exist. The company is already profitable and has a small moat based on its leadership in therapies to treat cystic fibrosis (CF), which affects nearly 163,000 people worldwide, according to the Journal of Cystic Fibrosis.
The stock could really pay off if exa-cel, its CRISPR-Cas 9 editing therapy that it is developing with CRISPR Therapeutics, is approved to treat sickle cell disease (SCD) and transfusion-dependent beta thalassemia (TDT). Both diseases are inherited blood disorders that exa-cel has been effective in curing during late-stage trials.
Vertex and CRISPR have already submitted their rolling biologics license application (BLA) for exa-cel with the Food and Drug Administration (FDA), and they are likely to hear if it is approved sometime this fall.
In the meantime, there are plenty of reasons to invest in Vertex, with or without exa-cel's approval. The company had first-quarter revenue of $2.37 billion, up 13% year over year, and said it expects product revenue this year to be between $9.55 billion and $9.7 billion, up 6.9% to 8.6% from last year.
Its net income dropped 8% to $699.8 million, compared to the same quarter last year, due to increased research and development spending, particularly for the company's late-stage clinical pipeline. But Vertex is in a strong financial position with $11.9 billion in cash.
Its lead therapy, Trikafta, continues to add indications for CF. In April, it was approved to treat children ages 2 through 5 with CF who have certain genetic mutations. It was already approved to treat patients 6 and older with certain CF mutations.
The therapy -- which brought in $1.4 billion in revenue in the first quarter in the U.S., up 3% year over year -- saw even more growth outside the U.S. with $971 million in revenue up 33% compared to the same period in 2022.
The company also got approval from the FDA earlier this month for Kalydeco, another CF therapy, to treat infants as early as a month to 4 months old, if they have at least one mutation related to their cystic fibrosis. The drug is already approved for patients older than 4 months. Last year, Kalydeco had $553 million in sales.
Vertex's pipeline includes a handful of other therapies in late-stage trials, including VX-548, a non-opioid pain reliever, and VX-147 to treat a form of kidney disease.
Medtronic is on the comeback trail
Medtronic's financials are as steady as they come. The medical device maker's earnings were hit by the pandemic, yet it has increased revenue in 12 of the past 13 years.
The company is coming off a so-so first quarter. Revenue was reported as $7.7 billion, flat year over year, and earnings per share (EPS) were down 16% to $0.92. The company is in the midst of a restructuring that it hopes will boost earnings.
In February, citing macroeconomic and supply chain factors that have cut into profitability and revenue, it said it was undertaking several cost-cutting measures, with plans to trim back its workforce and travel expenses, and improve manufacturing efficiencies. The key will be whether those efforts will adversely affect sales.
The company's business is benefiting from tailwinds, with strong adoption of the company's leadless pacemakers (i.e., they operate without wires leading into them), which saw sales rise 14% year over year in the third quarter.
It also got approval on May 1 from the FDA for its Micra AV2 and Micra VR2 next-generation miniature leadless pacemakers. They deliver longer battery life and are more easily programmed compared to earlier leadless pacemakers.
The company did increase its yearly adjusted EPS guidance to a range of $5.28 to $5.30, up from prior predictions of $5.25 to $5.30. That's still down from the adjusted EPS of $5.55 that it had in 2022.
Another revenue source Medtronic is looking into are mergers and acquisitions. It reportedly is competing with Johnson & Johnson to buy Shockwave Medical, known for using sonic pressure waves to treat patients with calcified arterial plaque.
Last year, Medtronic acquired Affera for an undisclosed sum. It plans to bring Affera's mapping and navigation platform and Sphere-9 catheter -- used in treating cardiac arrhythmia -- to the U.S. market soon.
It might take a while for Medtronic to get back to revenue growth, but in the meantime it pays investors well with a quarterly dividend that it has raised for 45 consecutive years, including an 8% boost this year to $0.68. The company has increased its dividend by 86% over the past 10 years, while growing revenue by 143%, and the yield is an above-average 3%.
