Even with government programs like Social Security, many people seek to save their own money for retirement, often setting the goal of reaching the $1 million mark by the time they reach retirement age. Turning to equity markets is still one of the best ways for most people to accumulate wealth over long periods, so retirement savers should strongly consider this option.
But, of course, stocks aren't all created equal. While some will deliver excellent returns and help investors accomplish their goals, others will be duds. Let's look at one biotech stock, Vertex Pharmaceuticals (VRTX -0.06%), and determine whether it falls in the first or the second category. Can this biotech giant help investors retire with $1 million or more?
Some ground rules first
The stock market isn't a tool for becoming rich overnight. So, let's assume an investor is 20 years away from retirement and is looking to turn an initial investment of $100,000 into $1,000,0000. That would require a compound annual growth rate of 12.2%. If that sounds easy to pull off, it isn't.
But Vertex Pharmaceuticals has delivered precisely these kinds of returns (and then some) in the past two decades. The next 20 years are a different story, though. Still, the biotech has many of the tools it needs to continue beating the market. Let's consider why.
VRTX Total Return Level data by YCharts
Innovation pays off
Vertex has found tremendous success developing cystic fibrosis (CF) medicines. The company has held a monopoly in the market for drugs that treat the underlying cause of this disease for over 10 years. CF is rare; it only affects 88,000 patients in the U.S., Canada, Europe, and Australia. Most of them have started treatment on at least one of Vertex's therapies over the past decade, especially after it earned approval for Trikafta, which treats up to 90% of CF patients, back in 2019.
Still, Vertex estimates that more than 20,000 eligible patients remain untreated. Meanwhile, Trikafta won't run out of patent protection until 2037. And while several competitors have tried to develop competing treatments, all of them have failed so far. Even if another biotech company enters this market, it should do little to disrupt Vertex's prospects. There are two reasons why. First, the company's entrenched position in this market will make it difficult for competitors to challenge it unless whatever medicine they develop is a complete game changer.
Second, Vertex is on the verge of expanding its portfolio and launching some non-CF products. The company is currently awaiting approval for exa-cel, a gene-editing therapy co-developed with CRISPR Therapeutics that targets a duo of rare blood illnesses with very few treatment options. Exa-cel could be a one-time curative treatment for these diseases. The therapy unquestionably boasts blockbuster potential.
Elsewhere, Vertex is running a phase 3 clinical trial for VX-548 in treating pain. While it may seem that there is no need for new treatments here, that's not true. Existing pain treatments, from opioids to acetaminophen (the generic name for Tylenol) come with severe adverse effects. Taking too much acetaminophen is one of the leading causes of acute liver failures in the U.S., while the recent opioid epidemic wreaked havoc in many communities.
Vertex Pharmaceuticals is looking to develop a pain treatment that is safer than the alternatives. The company is going after several other targets, including type 1 diabetes. Vertex's goal to develop a functional cure for this chronic illness is still far from materializing, as the company's programs along these lines are only in phase 1/2 clinical trials at best.
But there is a broader point here that should matter even more to long-term investors: Vertex is focused on innovating in areas with unmet needs. The biotech has an impeccable track record along those lines. Creating such a culture within a corporation isn't easy, but it is what many of the best-performing companies of the past 20 years have done.
There is more where that came from
It isn't easy to see 20 years ahead; you're really just making an informed guess. A lot could happen between now and then, and there are no guarantees in life. However, Vertex has the traits of a stock capable of delivering market-beating returns over the long run: a dominant position in its core market, an upcoming launch that will drive revenue and profits higher, and a culture of innovation that will yield new products in the next five years and beyond.
Vertex Pharmaceuticals certainly looks like it can help investors with a $100,000 initial investment become millionaires within the next couple of decades.
