Following the market's gloomy 2022, this year has been a breath of fresh air with the S&P 500 rising 14% so far in 2023. Some biotech stocks have soared even higher thanks to strong products. Cystic fibrosis specialist Vertex Pharmaceuticals (VRTX -0.06%) has risen 19% in 2023, while cancer specialist Exelixis (EXEL 0.72%) has gained 31% -- and both medical areas are likely to see strong demand for a long time to come.
Let's see why these two stocks could make good additions to investors' portfolios now.
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1. Vertex Pharmaceuticals
Vertex is well-known for its cystic fibrosis (CF) drugs and has maintained consistent revenue and profits in recent years. Some of its upcoming products have sparked more hope in investors.
Trikafta, a triple-drug combination therapy, is its best-selling product in the drug market. In 2022, this drug alone brought in $7.6 billion of Vertex's total product revenue of $8.9 billion. It increased the company's net earnings by 53% year over year in 2022, to $3.8 billion.
So far, 2023 has been beneficial to Vertex, with Trikafta contributing $2.2 billion to total product revenue of $2.5 billion in the second quarter. For the six months ended June 30, the drug has generated $4.3 billion in revenue.
VRTX Revenue (Quarterly) data by YCharts
Vertex has a good chance of continuing to dominate the CF field because few competitors are working on treatments. AbbVie recently announced the end of its CF research and development program (R&D) after its candidate therapy failed to perform well enough in clinical trials.
Impressed with Trikafta's growth in the U.S. and internationally, the company raised its full-year guidance. Management now expects total product revenue from cystic fibrosis products for the year to range between $9.7 billion and $9.8 billion.
Vertex is seeking to diversify its product portfolio and not rely solely on a single product. It has an agreement with CRISPR Therapeutics to use its advanced gene-editing technology (CRISPR-Cas9) to develop a functional cure for type 1 diabetes. Along with CRISPR, it completed regulatory submissions for exa-cel, a gene therapy intended to be a one-time treatment for both beta-thalassemia and sickle cell disease.
In clinical trials for both diseases, exa-cel has shown promising results. Exa-cel could cost up to $2 million per treatment, according to experts, but a patient would only need one course of the therapy. The agreement states that Vertex will receive 60% of the profits, while CRISPR will receive 40%. If successful, this product could be a huge hit for both companies.
If and when these treatments are approved, Vertex could have a few more blockbuster products on its hands. At the end of the quarter, the company had a strong balance sheet with $12.6 billion in cash, cash equivalents, and total marketable securities, which could help fund future pipeline development. Having such a diverse portfolio could help it grow and improve over the next few years.
2. Exelixis
Exelixis treats one of the deadliest diseases: cancer. Its portfolio includes a best-selling product that is driving exceptional growth. Cabometyx is a cancer treatment used to treat advanced renal cell carcinoma (RCC) and other cancers. It generated $1.3 billion in revenue in 2022, and it has generated $765 million in the six months ended June 30, up from $641 million in the same period last year.
Cometriq, a Cabometyx variant that is used to treat thyroid cancer, also adds to overall revenue. The company increased its adjusted net profits for the quarter to $81 million, up from $70 million the previous year.
Exelixis, like Vertex, does not want to rely on a single product to thrive in this fiercely competitive sector. Management stated in the Q2 press release: "Revenues from Cabometyx and the broader cabozantinib franchise directly support the build-out of our differentiated pipeline, including zanzalintinib, our next-generation tyrosine kinase inhibitor, and XB002, our most advanced antibody-drug conjugate."
These are the advanced cancer therapies that Exelixis is working on. The company continues to invest heavily in R&D to diversify its portfolio. In Q2, it spent $232 million on R&D. The biotech had $464 million in cash and cash equivalents at the end of the second quarter.
These two are worth the risk!
Biotech, while an evolving sector, is also volatile as many things can go wrong. Approvals may be delayed or denied, products may fail to generate enough revenue, and other issues may arise. Until a product is successful, a company might incur losses and burden its balance sheet.
However, patient investors can reap the benefits of these risky stocks. Biotech firms with innovative and successful treatments for difficult-to-treat conditions can generate consistent revenue. This is most likely one of the most attractive potential benefits of investing in companies like Vertex and Exelixis.
