This latest bull market is seeing a wave of enthusiasm from investors ... for the stocks of select companies. While some stocks are getting enthusiastic buy-in, there are plenty of others that haven't quite joined in on the market frenzy.
When you're investing in stocks with a long-term mindset around a quality company's ability to execute a business plan, you can afford to be patient and eventually benefit from the growth stories it generates in good times and bad. The trick, as always, is finding those quality companies and buying in at the right time to take advantage.
If you are on the hunt for these stocks in June, there are two healthcare stocks you may want to take a closer look at before the month is out.
1. Vertex Pharmaceuticals
Vertex Pharmaceuticals (VRTX 0.73%) has built its business on the urgent need for cystic fibrosis treatments. Its various medicines treat the underlying cause of the genetic disorder, and are the only drugs approved to do so. This class of drugs are called cystic fibrosis transmembrane conductance regulator (CFTR) modulators. Back in 2019, Vertex got the green light from the U.S. Food and Drug Administration (FDA) for its revolutionary CFTR modulator Trikafta.
The FDA's approval covered an incredible 90% of the cystic fibrosis patient population because it treated patients with the most common CF mutation. Since that time, Vertex has developed a series of label expansions for Trikafta and other drugs in its cystic fibrosis franchise, expanding its penetration of a broad total addressable market and tightening its already enormous foothold in this space.
Currently, the company is seeking approval for a new triple-combination therapy for cystic fibrosis. It combines three of its CFTR modulators into one, and multiple phase 3 studies showed that the new drug was equal to Trikafta in improving lung function but actually exceeded Trikafta's capabilities in reducing levels of sweat chloride. One of the key hallmarks of cystic fibrosis is excess levels of chloride in the person's sweat. Some analysts think that the new triple-combination therapy could bring in about $10 billion in peak revenue.
NASDAQ: VRTX
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For perspective, Trikafta brought in about $9 billion in sales in 2023 alone. And, the drug's key patents don't expire until 2037. The addition of this triple-combination therapy looks on track to be another big success for this business, which is already raking in considerable profits and cash. Net income rose 57% year over year in the most recent quarter alone, totaling $1.1 billion.
Cystic fibrosis is far from the only market opportunity Vertex is pursuing. It has an impressive pipeline of candidates. It is also seeking approval for stem cell treatments for diabetes and it is working on drugs that target the underlying cause of rare diseases such as autosomal dominant polycystic kidney disease (ADPKD), APOL1-mediated kidney disease (AMKD), and alpha-1 antitrypsin deficiency (AAT). These are all rare conditions that currently do not have any approved therapeutic options.
This month, Vertex is rolling out its latest approved drug, Casgevy, a gene-editing therapy it developed with CRISPR Therapeutics. Casgevy is widely expected to be another blockbuster but the launch, which targets certain individuals with transfusion-dependent beta thalassemia (TDT) and sickle cell disease (SCD), will take time to show results. In clinical trials, Casgevy was shown to eliminate the transfusion requirements for patients with TDT, and reduce or eliminate the painful episodes that sickle cell disease patients often have, called vaso-occlusive crises (VOCs).
2. Pfizer
Pfizer (PFE +0.11%) isn't getting much love from investors right now, but part of that is related to a bit of a hangover from its hugely successful efforts during the early stages of the COVID-19 pandemic. The business managed mega-blockbuster successes with a COVID-19 vaccine and an antiviral drug treatment that generated billions in added income for a couple of years.
Prior to the pandemic, Pfizer had been seeing several years of limited growth. In 2018, for example, the company clocked just 2% revenue growth and revenue actually declined 1% in 2019. Cyclical business fluctuations, the loss of patent exclusivity on some key products, and its lagging consumer health business were all factors at the time.
Then the pandemic struck, Pfizer teamed up with BioNTech to develop one of the approved COVID-19 vaccines, and the demand was huge. In 2022, Pfizer's COVID-19-related treatments helped the company generate a record-high $100 billion-plus in revenue (roughly double its normal annual revenue). That was after generating $81 billion in revenue in 2021.
The elevated revenue didn't last as the pandemic pressures eventually eased and fewer vaccine doses were needed.2023 revenue was much closer to its previous averages at $58.5 billion.
Pfizer put those billions in excess cash and profits into growing the business, including the execution of a series of acquisitions. It used $43 billion to acquire cancer drugmaker Seagen, a move that further cemented its leadership in the oncology space. It spent $11.6 billion to purchase Biohaven Pharmaceuticals, which is known for its migraine drug Nurtec.
NYSE: PFE
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Pfizer also spun off its lagging consumer health business into a joint venture with British drugmaker GSK. The end result was the publicly traded company Haleon. Pfizer made billions on the sale and it still owns a majority stake in Haleon (although it is working to slowly exit that position).
Pfizer is still managing the loss of patent exclusivity on some core moneymakers and it is working to replace waning COVID-19 sales. To help the situation, Pfizer is aggressively cutting costs, executing new product launches that are variations on its existing pipeline, and considering even more acquisitions.
Management laid out considerable growth goals over the coming years. The company announced it would launch 19 new products or indications in 18 months. If it's successful, it is expected to add $20 billion in additional annual sales by 2030. Management also announced that it expects to have eight or more oncology blockbusters in its portfolio by 2030. Business development efforts like its recent stream of acquisitions are expected to add up to $25 billion in annual revenue by the beginning of the next decade.
While Pfizer's financial growth has slowed, it still generated 7% operational growth in non-COVID-19 product revenue in 2023. Without its COVID-19 products factored in, revenue grew 11% year over year in the first quarter of 2023, while profits came to $3.1 billion.
This is a company that has been in business in some form for 175 years. It's survived many a crisis and economic cycle in its day. It's going through a period of transition and it looks well-positioned to make strategic use of its cash and profits from the past few years to revolutionize its product portfolio.
The stock trades at its lowest point in over a decade which has pushed the yield on its well-funded dividend to an eye-popping 6%. Now may be a time to consider the stock for its long-term growth potential over the next five to 10 years.
