Vertex Pharmaceuticals (VRTX 0.90%) is a growing business that generates billions in annual profit and has some incredible opportunities ahead. It's easy to see why investors are bullish on the stock and why it's continuing to do well this year, up 24%.
At 27 times earnings, however, it's not a terribly cheap stock to own. And at that valuation, you should be expecting some considerable growth from the business. According to at least one popular TV personality, there is plenty of that out there.
Jim Cramer highlights the potential of one of Vertex's drugs
On Monday, CNBC's Jim Cramer said that Vertex has a drug in its portfolio which addresses what he says would be "the largest market opportunity in the world." He's referring to VX-548, which is a non-opioid pain medication that is in late-stage trials. Addiction to opioids is a big problem in the country, and a pain medication that could avoid that would certainly be in high demand.
Analysts from Grand View Research also see this is a growing opportunity. Their data suggests that the global market for non-opioid pain treatment will be worth nearly $78 billion by 2030 as it grows at a compounded annual growth rate of 8.3% until then.
NASDAQ: VRTX
Key Data Points
Is VX-548's potential something investors should get excited about?
Phase 2 trials have been encouraging for VX-548, and results from the phase 3 trials could be available either late this year or early in 2024.
But while the results are positive and the market is big, Wall Street analysts aren't overly bullish on the drug's potential. By 2027, revenue from the drug may top a relatively modest $300 million, according to analyst estimates. In the long run, there is the potential for it to be a multibillion-dollar opportunity, but it's arguably not a huge game changer for Vertex.
The company may have better near-term opportunities in treating rare blood disorders with the gene-editing therapy, exa-cel, which it has been developing with CRISPR Therapeutics. Approval for that treatment could come by December, and that could be a multibillion-dollar opportunity as well.
Vertex could use a growth catalyst
Vertex has been a hugely successful company already with multiple cystic fibrosis drugs in its portfolio. It has been diversifying with other programs, including exa-cel, VX-548, and others, to open up more growth opportunities in the future. And those opportunities can't come fast enough. This year, it projects revenue to be $9.8 billion at most, which would be a 10% increase from the $8.9 billion it reported in 2022.
VRTX Revenue (Annual YoY Growth) data by YCharts.
The company's growth rate is slowing down, and it could definitely use a growth catalyst, especially with its valuation not being terribly low right now.
Profits have been surging
Although revenue growth hasn't been strong of late, Vertex's bottom line has been doing well. The positive for investors is that the company generates incredibly strong profit margins, which have been 35% of revenue over the past year.
VRTX Net Income (TTM) data by YCharts.
With strong margins, that enables Vertex to grow its bottom line at a fast rate along with revenue. And by doing so, that can make it a better buy, especially if it helps to bring down the stock's price-to-earnings multiple, which is currently around 29 and may seem a bit high to some investors.
Is Vertex stock a buy today?
Jim Cramer putting some attention on Vertex can be a good thing for the stock, at least in the short term. The company does have a promising pain medication in late-stage trials in VX-548, but analysts clearly don't see it dominating the market. There's a lot of competition with pain medications. So while the addressable market is huge, that doesn't mean sales of VX-548 will be. That's the important distinction investors need to keep in mind.
But despite that, Vertex still makes for a good healthcare stock to buy right now. Its growth rate is slowing down, but it still has an encouraging pipeline with opportunities not just in pain medication but in its gene-editing therapy, exa-cel, and inaxaplin, a treatment for kidney disease. And with a strong profit margin, a lot of that additional revenue should trickle down and boost the net income figure as well. There still much more growth out there for Vertex to pursue, and this remains an excellent stock for long-term investors to hang on to for years.
