Vertex Pharmaceuticals (VRTX -0.06%) has a knack for finding profitable niches, and it looks like it's on track to do so again in the field of pain relief. With the latest clinical-trial data pointing to possible development of a winning medicine, there's reason to believe that more revenue could be on the way.
But as smart investors know, it matters when precisely that revenue will arrive, and how much it'll actually be in comparison to expectations. So let's unpack the importance of this program, and realistically evaluate its ability to win in the massive market for pain relief.
Worth more than the entire rest of its portfolio?
Vertex is known for its collection of therapies for cystic fibrosis (CF), a rare inherited disease of the lungs. But its ambitions are larger than CF alone; in collaboration with CRISPR Therapeutics, it also recently commercialized a gene therapy called Casgevy to treat or cure both sickle cell disease (SCD) and beta thalassemia. Diversifying beyond CF is a necessity in the long term, as there are only around 92,000 known CF patients in the Western world, the majority of whom the company is already treating.
So for a few years now, the company's research and development (R&D) efforts have centered around programs that would give it an opportunity to enter other lucrative markets. It now looks like those efforts are on the verge of succeeding yet again, and perhaps with a win even larger than launching Casgevy.
Enter VX-548, a non-opioid analgesic (painkiller) that could well represent the next big step forward in pain management. The candidate just concluded phase 3 clinical trials for acute pain, and it's being investigated in a phase 2 trial for neuropathic pain related to diabetes as well. In the trial data, the candidate looks to be effective at relieving patients of their severe pain, but not quite as effective as the opioid drugs it was intended to outdo or replace.
Nonetheless, it's important to recognize the usefulness of the drug's non-opioid mechanism of action. Opioids get a bad rap because they're habit-forming and can cause fatal overdoses; they're also arguably overprescribed.
Since there are 80 million people in the U.S. who need treatment for acute pain, there's a huge market waiting for any competitor who can create a medicine with opioid-like efficacy, but without the risks. And because the candidate's mechanism of action is different not only from those of opioids but also from the mechanisms of analgesics like non-steroidal anti-inflammatory drugs (NSAIDs), there's a chance that it can be safely co-administered with other painkillers if patients need extra relief.
Right now, Vertex's trailing-12-month revenue is $9.6 billion. Financial analysts estimate that if it gets approved, VX-548 could generate between $5 billion and $10 billion annually by 2030. That means the program would have a massively beneficial financial impact for the company at the lower bound of those estimates, and a transformative one at the higher end.
Either way, it's a given that an approval would mark the definitive end of Vertex as just a cystic fibrosis medicine company, and the start of its life as a major diversified pharmaceutical business, a transition that's been in the making for a few years now. It's hard to imagine how its shares wouldn't climb upon news of the approval, not to mention in the following years as sales rolled in.
Don't expect a better stock valuation anytime soon
Vertex plans to submit the paperwork and work with regulators at the Food and Drug Administration (FDA) to get their approval for commercialization of VX-548 before the end of the first half of this year. That means it could be within 12 months of launching the drug. In the long term, expect management to devote resources to exploring what other pain indications VX-548 might be used to treat.
With such a high-impact approval looming on the horizon, don't expect to find this stock priced at a bargain, especially not since Vertex just launched Casgevy for two indications over the last three months. The stock's trailing price-to-earnings (P/E) ratio is already high at 32, but could go even higher once the market notices the revenue tailwind which could soon arrive.
Of course, getting a rejection from the FDA would cause the stock to crater. But given Vertex's smooth sailing through the clinical trial process with this program so far, that isn't very likely. And even if there's a setback, it has plenty of resources to correct any issues and try again, so it wouldn't be the end of the road for the program.
In other words, if you're thinking about buying shares, you may want to do so sooner than later as it isn't clear that the stock's valuation will come down anytime soon..
