When you think of biotech companies, you may think of up-and-coming players with exciting pipelines, but zero marketed products. These could make interesting investment opportunities. But they often hold a decent amount of risk. So, if you're a cautious investor, you may hesitate to dive in.
But what if I told you there are biotech companies suitable for cautious and aggressive investors? They're established players bringing in billions of dollars in earnings -- but they still offer the high growth opportunity associated with the word "biotech." It means you're getting the best of both worlds. Two top examples are Vertex Pharmaceuticals (VRTX -0.06%) and Biogen (BIIB 3.18%). Which is the better buy right now? Let's find out.
The case for Vertex
Vertex brings in billions of dollars in earnings annually thanks to its cystic fibrosis (CF) portfolio. The company makes treatments that correct the faulty functioning of a key protein involved in the disease. Its latest, approved in 2019, is called Trikafta and has the ability to treat 90% of CF patients. As for the remaining 10%, Vertex is working on a potential treatment right now.
The company is the world leader in CF treatment -- and thanks to its current products and those on the way, it expects to keep this position through at least the late 2030s. Meanwhile, Vertex also is building a presence in other areas. And it's heading for a big milestone. In December, regulators will decide on the company's gene-editing treatment for blood disorders. This could become another blockbuster.
Vertex also is approaching the finish line with a candidate for an area with huge need: pain. Most of us suffer from it at one time or another. But today, besides traditional over-the-counter options and prescription opioids, options are limited. And the addiction risk of opioids makes Vertex's non-opioid candidate a very exciting possibility. Vertex expects to finish the pivotal trials of that candidate late this year or early next year.
So, Vertex offers you a track record of growth -- and the promise of even more ahead.
The case for Biogen
Biogen also has brought in billions in earnings over the years and still does. But the problem has been growth. That's because Biogen's blockbuster multiple sclerosis drugs have lost exclusivity. And that means revenue is on the decline.
But Biogen may be about to enter a whole new era of growth. The U.S. Food and Drug Administration (FDA) recently approved the company's Alzheimer's drug, Leqembi. In trials, it slowed patients' clinical decline, offering hope in an area of great need. That's because treatment options today are limited to a few drugs that help reduce some symptoms.
Leqembi may reach $12.9 billion in sales by 2028, according to GlobalData forecasts. Biogen shares profit with partner Eisai, but this still represents a big opportunity for the biotech giant.
Meanwhile, Biogen also is awaiting a regulatory decision on zuranolone, a candidate for major depressive disorder and postpartum depression. The FDA is set to take action on Aug. 5. Zuranolone U.S. revenue may reach $1.6 billion annually by 2032, GlobalData predicts. Biogen will share profit with partner Sage Therapeutics, but, again, this still is another key opportunity to grow revenue.
Biogen also has a number of other candidates in the pipeline in the areas of neuroscience and immunology.
Of course, investors shouldn't expect earnings to soar overnight. Biogen has even said that Leqembi will weigh on earnings this year due to the investments it requires. So, investors will have to be patient. But, if Biogen's new drugs are successful, the company -- and investors -- could reap the rewards over time.
The better buy?
Let's consider valuation. Vertex is more expensive than Biogen in relation to forward earnings estimates right now.
VRTX PE Ratio (Forward) data by YCharts
But I think it's worth paying the premium. Biogen may be cheaper, but it still is in the very early stages of this new growth story. And it's depending a lot on Leqembi. Vertex's CF portfolio still is going strong -- and the company has the products and potential products to keep that going. And at the same time, it has opportunities for growth in other treatment areas that should boost revenue.
So, yes, Vertex is more expensive than Biogen. But it's still cheap considering all it has to offer. And that's why right now it makes for the better biotech buy.
