If, like many other investors, you've written off big pharma stocks because of their reputation for being slow-growing giants, Vertex Pharmaceuticals (VRTX 1.72%) might be the breath of fresh air you're looking for now. Far from being a sloth, this stock is up 91% in the past five years, topping the market's growth of 70%, and it has a few catalysts to grow further, and soon. Let's see why.
NASDAQ: VRTX
Key Data Points
The leader in treating Cystic Fibrosis
The company's bedrock are its four therapies for cystic fibrosis (CF), a rare hereditary lung disease. In 2022, those medicines sold for more than $8.9 billion, generating the business $3.9 billion in free cash flow in the process. It's also expecting to bring in up to $9.8 billion in sales for this year, which is a testament to how effective it is at squeezing more and more growth out of the market for CF therapies.
Because CF is a chronic and as-of-yet incurable condition, people need to keep taking the drugs for their entire lifespan. While Vertex's entries aren't the only therapies for CF, they are the only ones that can treat the root cause of the disease rather than the symptoms alone, which puts them in a privileged position in the market. And that's a big part of the reason why Vertex's annual top line grew by 636% over the last 10 years.
It's also looking to diversify
But the company is working to become more than a one-trick pony by diversifying into other disease areas. It has a few different programs that are in late-stage clinical trials, approaching their chance to be commercialized. It has another therapy for CF in phase 3, and it also has a non-opioid program intended to treat pain.
It's also pursuing a potentially curative treatment called exa-cel for both sickle cell disease and beta thalassemia, with the help of its biotech collaborator, CRISPR Therapeutics. Regulators at the Food and Drug Administration are already considering the pair's application for approval, and by the end of Q1 of 2024, they'll have weighed in. That means Vertex could commercialize another pair of medicines quite soon, which would send its stock climbing, thereby rewarding people who bought it today.
Worth holding for the long term
Expect Vertex to continue the same strategy of continuing to develop new medicines for CF to guard its near-total market share, as well as other drugs that would give it a big share of other markets. It still has plenty of opportunities to expand the indications of its existing set of CF drugs to grow its addressable market there even further, like it did on July 5 when its medicine Orkambi was approved in the E.U. to treat a group of around 300 children under the age of two who have CF.
Of course, Vertex isn't immune to experiencing worse-than-expected clinical trial results. But it has more than enough programs in its pipeline to be confident that it'll commercialize as many as five different programs within the next five years. Put differently, shareholders will have five huge opportunities to see their investments grow big time in the medium term, not to mention the more humdrum benefit of earnings growth.
There isn't much to suggest that this business is going to encounter headwinds stemming from its financial position -- or from anything else. It has only $767 million in debt, and more than $11 billion in cash. There aren't any competitors threatening its dominance in CF. Nor is it constrained from investing more in research and development to broaden its pipeline; it only spent $785 million in Q2.
All of the above means that Vertex is very likely to continue outperforming moving forward, which suggests it'd be smart to buy it and hold it forever.
