Most investors are happy if a stock doubles within four or five years. Vertex Pharmaceuticals(NASDAQ: VRTX) shareholders should be ecstatic. Its share price has skyrocketed 140% over the last three years.
But the impressive run for this biotech stock is far from over. Here are three reasons to buy Vertex Pharmaceuticals stock like there's no tomorrow.
1. Monopoly power
I can't think of many companies with a more resilient business than Vertex. The drugmaker should be able to rake in money quarter after quarter regardless of what happens with the economy. That's easy to do when you enjoy a monopoly in treating a genetic disease that can be life-threatening.
Vertex markets the only drugs that target the underlying cause of cystic fibrosis (CF). Tens of thousands of CF patients across the world rely on Kalydeco, Orkambi, Symdeko, and Trikafta to be able to live normal lives.
This CF monopoly has given Vertex an enviable financial position. The company expects revenue of around $10.75 billion in 2024. Its cash stockpile still stands at $5.8 billion after recently acquiring Alpine Immune Sciences for $4.9 billion.
And Vertex's CF monopoly could soon grow even stronger. The U.S. Food and Drug Administration (FDA) is scheduled to announce its approval decision for the company's vanzacaftor triple-drug combo by Jan. 2, 2025. If approved, this combo could become Vertex's most powerful and profitable CF therapy yet.
2. Multiple potential blockbusters on the way
Vertex could have multiple potential blockbuster drugs on the way outside of CF. The first has already won FDA and EU approval. The commercialization of gene-editing therapy Casgevy as a one-time treatment for sickle cell disease and transfusion-dependent beta-thalassemia is in the early stages.
The company awaits FDA approval of suzetrigine in treating acute pain. Suzetrigine meets a major unmet need in a multibillion-dollar market. It isn't addictive like opioids and is more effective than anti-inflammatory and analgesic drugs.
Vertex's pipeline features two other promising late-stage programs. Inaxaplin targets APOL1-mediated kidney disease (AMKD). There are currently no approved treatments for the underlying cause of AMKD, which affects more patients than CF. The acquisition of Alpine added povetacicept to Vertex's quiver. Vertex views the drug as a "pipeline-in-a-product" with an initial focus on IgA nephropathy, an autoimmune kidney disease that affects around 130,000 patients in the U.S.
The company is also targeting other indications in earlier-stage clinical trials. Vertex's programs focusing on type 1 diabetes could have the greatest impact. Its pipeline includes two experimental islet cell therapies in development that hold the potential to cure type 1 diabetes.
3. An attractive valuation
Vertex's CF monopoly and potential blockbusters on the way don't automatically make the stock a great pick. Investors must also consider valuation. The good news is that Vertex looks attractive on this front. You have to dig a little for this good news, though.
The acquisition of Alpine caused Vertex's bottom line to veer into negative territory. This makes earnings-based valuation multiples unreliable if not completely useless.
However, one valuation metric is especially helpful with Vertex: the price-to-earnings-to-growth (PEG) ratio with five-year growth projections. This ratio factors in the potential for the company's products awaiting approvals and its late-stage pipeline. A PEG ratio of less than 1.0 is viewed as an attractive valuation. Vertex's PEG ratio is 0.78.
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Keith Speights has positions in Vertex Pharmaceuticals. The Motley Fool has positions in and recommends Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.
