It is customary to say that past success isn't a guarantee that a company will continue down that path -- a true statement. However, a corporation's track record provides vital information about its capabilities that helps decide whether it's worth investing in. That's why looking at a company's past can be useful.
With that said, let's look at a leading biotech that has delivered excellent returns over the long run: Vertex Pharmaceuticals (VRTX -0.06%). Just how great has the drugmaker's performance been? Read on to find out how much a $10,000 investment in Vertex 10 years ago would be worth today and what it means for investors.
VRTX Total Return Level data by YCharts
Vertex's longtime shareholders are happy
Let's first quickly review Vertex's business. The company specializes in developing drugs for diseases with unmet needs. The biotech hit gold when it started producing therapies for cystic fibrosis (CF), a rare genetic illness that affects patients' internal organs.
Here's the great thing: Vertex became the only company in the world to market drugs that treat the underlying causes of CF. Other drugmakers couldn't develop competing drugs for this disease, and it wasn't for lack of trying. Many other biotech companies tried but failed.
Since it holds a monopoly in this field, Vertex has substantial pricing power. Further, it has continued to develop newer and better medicines. In 2019, it earned approval for Trikafta, a combination therapy that can treat up to 90% of CF patients.The result of Vertex's highly successful CF-related work has been rapidly growing revenue and earnings in the past decade, and its stock price has also increased by leaps and bounds.
So how much would a $10,000 investment in the biotech be worth today? The company's shares have delivered a compound annual growth rate of 17.8%, which would have transformed a starting capital of $10,000 into $51,414. The S&P 500's CAGR over the same period was 12.9%, which would have turned $10,000 into $33,498.
There's much more where that came from
That's Vertex's past. But what does the company's future look like? Thankfully, it's likely very similar. Vertex isn't done innovating within its core therapeutic area.
It recently reported positive results from a phase 3 clinical trial for a new therapy, which showed non-inferiority to the company's current crown jewel, Trikafta, all with a convenient once-daily dosing. Trikafta is typically taken twice a day. The biotech is racing toward a new approval for this medicine. And it is still developing more CF therapies for those patients who aren't eligible for its existing treatments.
However, Vertex is diversifying its lineup. Last year, it earned approval for Casgevy, a gene-editing treatment it developed with CRISPR Therapeutics for a couple of rare blood diseases. The biotech also just reported positive results from a late-stage study for VX-548 in treating acute pain. Vertex is hoping VX-548 can serve as a substitute for opioid-based pain medications that often carry substantial side effects.
While its phase 3 results were not as convincing as it might have hoped, at least in this regard, VX-548 should still earn regulatory approval. Vertex also has several other exciting candidates in early-stage studies.
So, what can we expect from the company moving forward? First, there will almost certainly be more clinical and regulatory wins in the next few years. Second, the drugmaker is moving to substantially diversify its lineup. Third, revenue and earnings should continue growing at a good clip.
All in all, Vertex looks set to continue delivering market-beating returns. Can it register a CAGR of 17.8% through the next decade again? My view is that there is an excellent chance its performance will be in the same neighborhood. There aren't many better biotech stocks to buy than Vertex Pharmaceuticals.
