With Vertex Pharmaceuticals (VRTX -0.58%) announcing on June 21 that its therapy VX-880 helped nearly all of the patients with diabetes in a clinical trial to reduce or eliminate their need for other treatments, it's natural for investors to assume that Novo Nordisk's (NVO -2.69%) blockbuster drug Ozempic might have another competitor on the horizon.
If that were the case, making a timely investment in Vertex stock might prove to be a great decision in a few years' time. Let's unpack what's going on and then make a judgment about whether to invest or not.
NASDAQ: VRTX
Key Data Points
Don't write off Ozempic, part one
Vertex's VX-880 program is in phase 1/2 clinical trials, and it's a cell therapy intended for use in people with type 1 diabetes. Type 1 diabetes is an illness caused in part by autoimmune dysfunction that leads to reduced efficiency and premature death of islet cells, which are responsible for producing insulin to regulate a person's blood sugar.
In a nutshell, the therapy's concept is to take stem cells from healthy donors and force them to differentiate into islet cells, which typically reside in the pancreas. Then, those islet cells are infused into the patient, where they subsequently migrate to their normal location and engraft there. If the process works as intended, the newly engrafted islet cells produce enough insulin for the body's requirements, ending the need for treatments like supplemental insulin injections.
Per the readout from Vertex's clinical trial, within 90 days of getting an infusion of VX-880, 11 out of the 12 patients no longer needed insulin therapy to regulate their blood glucose. Twelve months out, three of those people met the criteria for being insulin independent, and they reported experiencing zero severe hypoglycemic events (SHEs). The remainder of the patients in the study could still experience the same excellent outcomes, but there hasn't yet been enough time since their infusion to gather data on the 12-month time point.
So did Vertex just invent a functional cure for type 1 diabetes? It's too early to say with confidence, but on the very preliminary basis of this early stage data, it seems to be the case.
Such a victory would be a landmark humanitarian accomplishment if it were brought to market. It could, in theory, also eventually dent Novo Nordisk's top line, as the company's lineup of insulin therapies and other diabetes-targeted drugs constitute a big slice of its business.
NYSE: NVO
Key Data Points
But investors should appreciate that there is simply no way for VX-880 to be the next Ozempic. Ozempic is a therapy for type 2 diabetes, not type 1. And 90% of all diabetes cases are type 2, not type 1. So Vertex has no feasible way of stealing Novo's market share with this candidate, assuming it ever gets approved for sale at all.
Don't write off Ozempic, part two
There's still another major reason VX-880 won't be the next Ozempic.
Researchers unaffiliated with Novo Nordisk recently published a small study that suggests semaglutide, the active ingredient of Ozempic, could be helpful in treating type 1 diabetes. If Novo Nordisk decides to pick up their work and initiate clinical trials to confirm their findings, it could then potentially seek a label expansion for Ozempic's use so that it could treat type 1 diabetes, too.
There isn't yet any indication that there are any plans to go down that road, but the picture is clear: Ozempic is much more likely to one day encroach on Vertex's market share with VX-880 than the reverse.
Is the stock worth buying?
Regardless of Novo Nordisk's intentions with Ozempic or the pair's chances of getting into a direct competition down the line, Vertex Pharmaceuticals is still a favorable investment right now. Its attempts to spin up sophisticated therapies for conditions like diabetes will likely eventually be fruitful, and it has a large base of recurring revenue to lean on in the meantime.
It didn't need anything like Ozempic to increase its trailing-12-month net income by nearly 102% during the past three years, reaching just over $4 billion. And, with its new gene therapy Casgevy hitting the market recently, alongside programs that may soon attain regulatory approval, like its non-opioid candidate for treating acute pain, it has a long runway for more growth.
