Biotech giant Vertex Pharmaceuticals (VRTX -0.06%) is firing on all cylinders. The company has performed better than the broader market in the past year as its core cystic fibrosis (CF) franchise continues to march forward, and it is currently awaiting approval of exa-cel, a potential gene-editing therapy for sickle cell disease (SCD) and beta-thalassemia (TDT).
Exa-cel, which Vertex developed in collaboration with CRISPR Therapeutics, could generate well over $1 billion annually at its peak, and it will be the first non-CF product Vertex has launched in more than a decade. Naturally, this medicine is garnering a lot of attention. However, Vertex Pharmaceuticals is working on other programs that could be equally or even more promising than exa-cel. Let's take a look at some of them.
Its secret sauce: Getting to the underlying cause
Vertex Pharmaceuticals made a fortune thanks to its CF franchise for two reasons. First, it developed medicines that address the underlying causes of the disease and not just some of its symptoms. Second, Vertex is the only company in the world so far that has successfully created CF therapies of this type, so it holds a monopoly in this market.
The company is looking to reproduce this approach in other areas. Vertex is developing treatments that target the underlying causes of APOL1-mediated kidney disease and Alpha-1 antitrypsin deficiency (AATD). APOL1-mediated kidney disease is a genetic disorder that causes various symptoms, such as fatigue, swelling of some limbs, and weight gain.
AATD is an inherited disease that lowers the body's defenses in the lungs and the liver and increases the patient's likelihood of developing lung or liver disease. There aren't any medicines that target the underlying causes of either. Further, Vertex estimates that each has a population of about 100,000 patients. By comparison, there are only 88,000 CF patients in geographies where Vertex does business.
The company's potential treatment for AATD, VX-864, is currently undergoing a phase 2 study, while inaxaplin, Vertex's investigational therapy for APOL1-mediated kidney disease, is in a phase 2/3 trial.
Looking at exa-cel limitations
Why could inaxaplin and VX-864 be even more promising than exa-cel? After all, the gene editing therapy could be looking at a market worth tens of billions of dollars. However, gene editing treatments have certain limitations, and exa-cel is no different. It is a complex treatment to administer. Here's a short summary of how it's done. Physicians start by collecting the patient's cells from his or her blood. Then they edit those cells before infusing them back into the patient through a stem cell transplant. This lengthy and complex procedure is performed in authorized treatment centers.
Because of these factors, Vertex's revenue from exa-cel could take some time to ramp up. And that's before we add the fact that Vertex will keep only 60% of the profit associated with the therapy, per its agreement with CRISPR Therapeutics. Furthermore, the company faces some competition from the smaller Bluebird Bio, which has a first-mover advantage in the TDT market in the U.S. and is currently awaiting approval for lovo-cel, an SCD therapy.
Vertex Pharmaceuticals is a slam dunk
What does all this mean for investors? First, exa-cel remains highly promising despite its limitations. But Vertex's prospects go far beyond what will probably be its next launch. The company's approach could lead to more regulatory wins with inaxaplin and VX-864. If Vertex can reproduce its success in CF within the AATD and APOL1-mediated kidney disease markets -- in addition to launching exa-cel -- the company's revenue, earnings, free cash flow, and stock price will skyrocket in the next decade, just as it did in the past 10 years.
Naturally, Vertex Pharmaceuticals still has hurdles before this scenario becomes reality. And other companies are targeting the AATD and APOL1-mediated kidney disease markets. For instance, mid-cap biotech Arrowhead Pharmaceuticals has a potential AATD-associated liver disease treatment in phase 3 studies. Still, the important thing is that Vertex is casting a wider net this time than it did with CF, and at least some of its programs will likely be successful.
Thanks to its innovative potential, Vertex Pharmaceuticals remains a leading biotech stock to buy and hold for a while.
