Vertex Pharmaceuticals (VRTX -0.06%) has built a billion-dollar cystic fibrosis (CF) treatment empire, but investors have been looking for something more. They've hoped to see the company broaden its work into other areas to add an extra lift to long-term growth.
When Vertex announced the failure of two candidates to treat alpha-1 antitrypsin deficiency (AATD), an inherited disorder affecting the lungs and liver, back in 2020 and 2021, investors took the news particularly hard -- seeing this as a sign Vertex was struggling to expand beyond CF. The stock sank about 35% from the first AATD failure to a low point in 2021.
Months later came a spark of hope. Vertex, along with partner CRISPR Therapeutics, announced significant progress in its program to treat blood disorders. Today, the dreams of these companies, patients, and investors have come to fruition. Vertex and CRISPR Therapeutics just won a regulatory nod for exa-cel, to be sold as Casgevy, for the treatment of sickle cell disease. With this approval, Vertex proved something big to investors: It can, indeed, succeed beyond CF. Does this make the biotech a buy? Let's find out.
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Vertex's blockbuster revenue
First, it's important to note that Vertex's dominance in CF -- and the blockbuster revenue thanks to CF drugs -- is far from over. Patents protect Vertex's best-seller, Trikafta, until 2037. And Vertex is also studying a CF candidate in pivotal trials that may be even more efficacious and easier to take -- due to a once-daily dose instead of twice -- than Trikafta.
On top of all this, Vertex aims to serve a smaller portion of CF patients who can't be helped by the company's current drugs. Along with Moderna, it's launched a clinical trial for a candidate to specifically treat this patient group.
Last year, CF drugs generated $8.9 billion in revenue for Vertex, with Trikafta bringing in 87% of that. Considering Vertex's pipeline, growth in this treatment area could continue for quite some time.
Now, a little bit about Casgevy. This past week's approval in the U.S. came a few weeks after an authorization in the U.K., marking the world's very first regulatory nod for a CRISPR-based gene-editing treatment. The U.K. authorized Casgevy for sickle cell and beta thalassemia -- the U.S. Food and Drug Administration (FDA) plans to decide on Casgevy for beta thalassemia in March. The companies also await a regulatory decision from the European Union.
Treatment options have been limited for these blood disorders, so even though the Casgevy treatment process is a heavy one -- requiring several steps over a few months -- it's likely to spark the interest of doctors and patients. Especially since it's designed as a one-time treatment to result in a functional cure. But Casgevy is among one of the world's most expensive pharma products, set at $2.2 million, so uptake will also depend on reimbursement agreements.
Ready to launch Casgevy
Vertex is ready to roll out Casgevy immediately, though, with nine authorized treatment centers established across the country. The company says about 16,000 patients may be eligible for the gene-editing product.
Now, let's consider what this means for Vertex in terms of revenue. The length of treatment and the question of reimbursement mean revenue growth for Vertex and CRISPR Therapeutics will take some time. Goldman Sachs forecasts Casgevy peak revenue of $3.9 billion, according to Bloomberg.
Following this FDA approval, Vertex will make a $200 million milestone payment to CRISPR Therapeutics, and Vertex will retain 60% of profits from the product as part of the profit share agreement.
Considering all this, it's clear Casgevy's revenue won't reach the levels of Vertex's CF portfolio -- or even star product Trikafta. But that's OK. Casgevy still provides an additional revenue stream and, maybe more importantly, shows Vertex can indeed expand beyond its specialty area.
And Casgevy may soon be joined by other Vertex products beyond CF. For example, Vertex is wrapping up a pivotal trial of its pain management candidate right now and aims to report results early next year. All this should offer doubtful investors reason to be confident about the biotech company's long-term growth prospects.
A bargain price
So, is it time to buy the stock? Even after double-digit gains this year, Vertex shares trade for only 23x forward earnings estimates. That looks like a bargain price to pay for a company with a steady track record of billion-dollar earnings growth, durable leadership in its field, and now proof that it can succeed in other treatment areas, too.
That's why, even if Casgevy isn't Vertex's biggest product, it represents another reason to believe in the company's capabilities -- and add these promising shares to your portfolio.
