There's nothing wrong with owning index funds, but growth stocks by definition outpace the revenue or profit of a typical stock, which likely results in greater gains than index funds can produce.
Vertex Pharmaceuticals (VRTX -0.06%) and Novo Nordisk (NVO 0.84%) fit the definition of a growth stock. These two pharmaceutical companies have products that have helped them outpace the S&P 500's total return over the past five years, and they certainly have the potential to continue doing so.
Vertex is poised for a breakout
Vertex, known for its range of cystic fibrosis (CF) therapies, has increased revenue by 193% over the past five years -- and the company's growth trend could just be getting started.
It just presented data on a phase 1/2 clinical trial for VX-880 to treat patients with hypoglycemia (low blood glucose levels), including those with type 1 diabetes. The study included six patients who had severe hypoglycemic events (SHEs) in the year before receiving the therapy. After treatment, all six saw restored insulin secretion and improved glycemic control, with no SHEs during the evaluation period.
The exciting thing about Vertex's cell therapies is their potential to be effective cures for hard-to-treat diseases. The company is awaiting approval from the Food and Drug Administration (FDA) for exa-cel, a therapy candidate that Vertex and CRISPR Therapeutics partnered on to treat genetic blood diseases.
In phase 2/3 trials, exa-cel halted painful vaso-occlusive crises and the need for blood transfusions in all 31 sickle cell disease (SCD) patients in the study. In a separate trial to treat tranfusion-dependent beta thalassemia (TDT), 42 of the 44 who took the therapy no longer needed transfusions, with the other two needing far fewer transfusions. The FDA has listed a Prescription Drug User Fee Act (PDUFA) date of Dec. 8 for the therapy to treat SCD and a March 30, 2024, PDUFA date for exa-cel as a TDT therapy.
While those therapies wend their way through the approval process, Vertex's CF program is driving profits. Its lead CF product is Trikafta, also known in Europe as Kaftrio. An ongoing five-year study of patients given the treatment showed improved lung function and 79% reduction of pulmonary exacerbations, with a lower death rate and less need for lung transplants.
Trikfafta/Kaftrio brought in $2.1 billion in sales in the first quarter, up 19% year over year, and Vertex's overall quarterly revenue was $2.37 billion, up 13% compared to the same period a year ago.
The company reported earnings per share (EPS) of $2.69, compared to $2.96 in the first quarter of 2022, due to increased research and development costs, but that's not a huge concern, considering the potential in the company's pipeline, which includes 16 named programs and five potential new product launches over the next five years.
NVO total return level; data by YCharts.
Novo Nordisk is at the start of a growth curve
Over the past three years, Novo Nordisk has seen its annual EPS jump by more than 25%. The Danish company's focus on diabetes therapies is driving that growth, and it now has a diabetes-care market share of 32.2%. The global diabetes management market is expected to grow from $14.3 billion in 2022 to $25.5 billion by 2027, a compound annual rate of 12.2%.
The company has two blockbusters driving sales: type 2 diabetes drug Ozempic and weight-loss therapy Wegovy (though Ozempic is also prescribed off-label for weight loss). Both products are formulations of semaglutide, which activates receptors in the brain that regulate appetite, essentially telling patients that they feel full.
It has been hard for Novo Nordisk to keep up with demand for its obesity care products, with sales of the group up 124% year over year, in the first quarter. Overall sales in the quarter were reported as 53.4 billion Danish krone ($7.2 billion), up 27% from the same period last year, and net income of 19.8 billion krone ($2.7 billion), up 39% year over year.
Wegovy is currently administered by injection. But a similar drug taken in pill form could really drive sales if approved because it would be easier for patients to administer. The drug is CagriSema, which contains semaglutide plus cagrilintide, which replicates a hormone that makes users feel full after eating.
Results of a phase 2 study released Sunday in The Lancet indicated high-dose (50 milligrams) oral tablets of CagriSema might work as well as injections of semaglutide and will also work on diabetics who struggle to lose weight.
Novo Nordisk said it plans to ask the FDA to approve the pills later this year. One concern, though, is that the higher doses seem to come with the risk of more side effects.
Of the 92 patients in the trial, those dosed with CagriSema did better on blood-sugar control than with either cagrilintide or semaglutide alone. Those receiving CagriSema also did better on weight loss, dropping an average of 15.6% of their body weight, compared to 5.1% for semaglutide or 8.1% cagrilintide alone.
Looking to the rest of the year, Novo Nordisk said it expects sales to rise 24% to 30% and operating profits to grow 28% to 34%, based on constant exchange rates.
