Vertex Pharmaceuticals (VRTX -0.06%) has climbed in the double digits this year and is trading around its highest ever. There are plenty of reasons for this top performance. The company continues to generate billions from its market-leading cystic fibrosis (CF) treatments, and it may be about to take a major step outside this specialty area: Vertex is awaiting regulatory decisions on exa-cel, its treatment candidate for blood disorders.
The big biotech also is moving forward with many other exciting programs that could result in major earnings growth down the road. So, it's no surprise a lot of investors have been getting in on this story. But, as we look at the stock's level today, should we think twice before investing, or is it worth buying this biotech player at the high? Let's find out.
Vertex's top seller
First, a look at Vertex's core business, and that's CF. In the illness, a faulty protein doesn't properly regulate the flow of water and chloride in cells of various organs, resulting in devastating symptoms. The company sells four different CFTR modulators meant to fix this faulty protein. Vertex's top seller, Trikafta, generated $7.6 billion in sales last year, and sales potential continues to grow as the product wins approval in new age groups and in various countries.
But Vertex's CF dominance doesn't end here. The company is studying a once-a-day CFTR modulator candidate in phase 3 trials that may even beat the twice-daily Trikafta. Vertex aims to release results of the study early next year, so if all goes well, we could imagine a new CF product launch in the not-too-distant future.
The company also is investigating a candidate for the 10% of patients who don't produce CFTR protein at all and can't benefit from Vertex's current treatments. Vertex and partner Moderna are enrolling patients in a phase 1 trial of that candidate, designed to program lung cells to produce the CFTR protein.
All of this means Vertex is likely to remain a leader in the CF market, as it's predicted, at least until the late 2030s.
At the same time, the company also is addressing investors' biggest concern: the idea that Vertex depends too much on one treatment area. Vertex may be about to show it can successfully move beyond CF. The U.S. Food and Drug Administration (FDA) is set to decide on exa-cel for sickle cell disease in December and exa-cel for beta thalassemia in March.
Potential for blockbuster revenue
The company partners with gene-editing company CRISPR Therapeutics on exa-cel, but Vertex will take 60% of potential profits, and exa-cel should bring in blockbuster revenue, about $1.7 billion in 2028, according to Evaluate Pharma. So, while exa-cel may not reach the revenue levels of Trikafta, it still could be an important product.
The other near-term launch opportunity outside of CF involves a candidate to treat a very common problem: pain. Today, our choices are common over-the-counter options, which may not be efficacious, or opioids, which are linked to addiction. Vertex's non-opioid candidate could fill the gap and bring in major revenue over time. The company aims to complete the phase 3 study for its candidate this year and report results early next year.
It's clear this is an exciting time for Vertex, with many opportunities for growth ahead. That's on top of an excellent earnings-growth track record.
VRTX Net Income (Annual) data by YCharts.
And the company's total assets well outweigh its liabilities -- another positive point.
VRTX Total Current Assets (Annual) data by YCharts.
All of this looks great. But what about valuation after the stock has galloped higher month after month? Vertex shares trade for 25 times forward-earnings estimates right now. This is higher than they were a couple of years ago when they traded for a forward price-to-earnings multiple (P/E) of about 15.
But even at today's level, the stock price looks reasonable considering Vertex's ongoing leadership in CF and its potential to grow well beyond that specialty area. And that means if you invest in Vertex now, you still could gain quite a bit over the long term, making this biotech stock well worth buying at the high.
