Vertex Pharmaceuticals (VRTX 0.79%) transformed the world of cystic fibrosis (CF) treatment when it launched its first product for the disease 12 years ago. Since then, it's built a CF treatment empire, including a portfolio of products that actually address the underlying cause of the disease. Led by the latest, Trikafta, these medicines have extended the lives of those with CF and have generated billions of dollars in earnings for the biotech company.
Thanks to these game-changing treatments, Vertex has said it's set to dominate the CF treatment market through the late 2030s. But recent developments could extend this leadership, and even offer Vertex a brand new billion-dollar growth driver that could kick into action as soon as early next year. Let's check out what may launch this new era of growth for Vertex and decide whether the stock is a buy today.
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Vertex's blockbuster revenue
First, a quick summary of how and why Vertex's products have transformed the lives of patients -- and therefore resulted in blockbuster revenue. In our bodies, the cystic fibrosis transmembrane conductance regulator (CFTR) gene makes a protein that regulates the flow of water and salt in and out of cells. This may seem like a simple thing, but if the protein doesn't do its job right or at all, a buildup of thick mucus over time leads to life-threatening problems in the lungs and throughout the body.
In cystic fibrosis, a CFTR protein doesn't operate properly -- and this is where Vertex's CFTR modulators come in, fixing the protein and helping it to perform its duties. Vertex's most recent CFTR modulator, Trikafta, won approval in 2019 and has the potential to treat 90% of people with CF. This population is determined by which genetic mutation causes the patient's disease.
Trikafta quickly became a blockbuster, and last year it generated $8.9 billion in revenue for Vertex. The company's other CFTR modulators made up the rest, for a total of $9.8 billion in annual revenue.
Meanwhile, another CFTR modulator, one that could even top Trikafta, has been going through clinical trials -- but it isn't a candidate from a rival. Instead, Vertex itself is aiming to launch a drug that's even better than its best-seller. Meet the "vanza triple," a triple combination treatment that promises to be not only more effective for patients, but also more convenient.
NASDAQ: VRTX
Key Data Points
A regulatory decision by Jan. 2
My prediction is that this product will quickly become Vertex's new billion-dollar growth driver. The U.S. Food and Drug Administration just accepted the vanza triple for priority review, shortening the usual review time to six months from 10. The agency is aiming to decide on the potential drug by Jan. 2. And considering Vertex's hefty commercial infrastructure, a launch could be swift and effective.
So why is the vanza triple such a major development? People with CF have high levels of chloride, from salt, in their sweat; this is because of the poor regulation of water and salt in the cells. The vanza triple has brought down sweat chloride levels in patients during clinical trials -- to below the diagnostic level for the disease, and even to levels seen in those who don't have the disease.
Trials found the vanza triple non-inferior to Trikafta in improving lung function, and better than the blockbuster in lowering sweat chloride levels. On top of that, the vanza triple is dosed once daily rather than twice daily like Trikafta.
Vertex expects the vanza triple to appeal to both Trikafta patients and to the 6,000 patients who have discontinued CFTR modulators -- so the potential product should soar to blockbuster status and even beat Trikafta. Another positive point is that the vanza triple has a lower royalty burden. The royalty rate today of Vertex's CF portfolio is a bit less than 10%; the company says the rate for the vanza triple will be in the single digits and "meaningfully lower."
All of this means the vanza triple has what it takes to drive further growth at Vertex, and keep the company in its CF leadership position for quite some time.
So, is Vertex Pharma a buy right now? Vertex shares have climbed more than 130% in the past three years, leaving the stock trading at 27 times forward earnings estimates. But considering my prediction for the vanza triple and the strength of the company's overall portfolio, this level looks very reasonable. And that makes Vertex a top biotech stock to buy and hold onto for the long term as its billion-dollar story accelerates.
