Sometimes a company has a mixture of proven performance and upcoming catalysts that make the idea of buying it hand-over-fist practically irresistible. And that's exactly what Vertex Pharmaceuticals (VRTX -0.06%) is modeling right now.
Thanks to its long-standing dominance in a key niche market, its newfound pursuit of powerful gene therapies, and its cash output, there's good reason to be excited about the stock. So here are three arguments for why it's worth buying now.
1. Its base of recurring revenue is rock solid
Vertex's sales are highly recurring because it makes medicines that patients need to take consistently to manage their chronic symptoms. Specifically, it makes four different drugs to treat cystic fibrosis (CF), a hereditary lung disease affecting around 88,000 people in the Western world, and it has even more in development.
For 2022, sales of those medicines brought in nearly $9 billion, up 637% from 10 years ago. Its medicines are the only ones capable of addressing the root causes of CF, and thus it has no real competitors for its market share. Plus, it's working to expand the indications of its existing medicines. As recently as April, it nabbed approval for its drug Trikafta to treat children between the ages of 2 and 5 who have a specific mutation relevant to CF. Around 900 additional patients can now be treated as a result.
Management thinks that it can eventually reach the remaining 20,000 patients with CF who haven't yet started ongoing treatment with its medicines. And as long as it can keep delivering its life-saving treatments to more and more people each year, its top line will stay strong, too, which is a solid reason to buy the stock.
2. Its groundbreaking gene therapy just got approved
Vertex is also currently commercializing a cutting-edge gene therapy called Casgevy, which can treat either sickle cell disease (SCD) or beta thalassemia, a pair of rare blood disorders. Developed with the help of CRISPR Therapeutics, Casgevy is intended to be curative or near-curative for both conditions, which affects around 32,000 people in the U.S. and European Union.
The drug candidate is already approved in the U.K. and in the U.S. for its sickle cell disease indication as of Dec. 8, but it isn't marketed for beta thalassemia just yet. Regulators will decide on the beta thalassemia indication next year on March 30. As there weren't any deal-breaking concerns for regulators regarding using Casgevy for SCD, regulators could easily be quick to give it a stamp of approval for beta thalassemia, too.
Therefore, another major catalyst for the stock is nigh. That's great news for shareholders, and a tantalizing possibility for people thinking of buying the stock.
3. It has plenty of cash, with even more on the way
Biopharmaceutical businesses thrive when they have plenty of cash on hand to spend on acquisitions in support of their research and development (R&D) activities. In Vertex's case, it has nearly $12 billion in cash, equivalents, and short-term investments, whereas its trailing-12-month operating expenses are only roughly $4 billion.
That means if a promising young biotech or pharmaceutical asset were to come on the market, the company won't have any problem shelling out the cash to buy it up. This could help further expand Vertex's pipeline, much like in 2022 when it acquired ViaCyte for $320 million for its type 1 diabetes candidate in early stage clinical trials.
Vertex also adds to its hoard at a rapid pace. In 2022, it approached $4 billion in free cash flow (FCF) for the year. Furthermore, it's not beyond the realm of possibility for it to eventually issue a dividend. And that's yet one more reason to buy the stock.
