Vertex Pharmaceuticals Just Hit an All-Time High. Here's Why the Biotech Stock Could Soar Even More
Key Points
Vertex Pharmaceuticals appears likely to continue to dominate its core therapeutic area.
The company is slowly developing and launching medicines in other markets.
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The past couple of years have been volatile for Vertex Pharmaceuticals (NASDAQ: VRTX). Between clinical setbacks and worse-than-expected financial results, the company has sometimes disappointed investors. However, Vertex has always bounced back, and it recently hit a new all-time high, though it has since receded from that. Even so, the future is bright for the drugmaker. Here is why there is plenty more upside ahead.
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The core business is still strong
Vertex Pharmaceuticals is best known for developing medicines that treat cystic fibrosis (CF), an area where it has no meaningful competition. Some investors worry that this might change soon, as several drugmakers are looking to launch competing CF medicines. Sionna Therapeutics, a much smaller biotech company, has an entire pipeline dedicated to that. Other companies are also on this trail, including Krystal Biotech.
However, for now, Vertex continues to dominate this field and generate significant revenue and earnings. In the second quarter, the company's sales came in at $3.33 billion, up 12% year over year. Vertex's earnings per share were $4.31, about 8% higher than the year-ago period. Potential competition in the CF area poses a significant risk to the company, given that CF revenue totaled $3.2 billion during the period. But it's not the first time that Vertex has faced this risk. Many previous attempts to challenge the company in CF have failed.
Several years ago, AbbVie (NYSE: ABBV), a pharmaceutical giant, gave up on challenging Vertex Pharmaceuticals after its leading CF programs flopped in clinical trials.
We can now add one of Sionna's leading candidates, which recently failed a mid-stage study, to that list. Meanwhile, Vertex has launched new medicines outside its core area in recent years. The company expects $500 million in non-CF revenue in 2026 -- that's not that significant, but Vertex's non-CF business should start ramping up. Vertex's Casgevy, a gene editing medicine for a pair of rare blood-related conditions, recently earned a label expansion and is now indicated to treat children as young as two. Journavx, the company's non-opioid treatment for acute pain, could also earn label expansions.
Vertex's diversification efforts
Vertex Pharmaceuticals is racing toward the approval of povetacicept, an investigational medicine for IgA nephropathy, a kidney disease. The medicine completed a phase 3 study earlier this year and could get the nod from U.S. regulators by the end of November. Povetacicept may earn label expansions beyond that, too. The therapy could, eventually, meaningfully contribute to Vertex's financial results. Analysts estimate that it will generate well over $1 billion in annual sales at its peak.
Vertex has other promising pipeline candidates, including inaxaplin, which it is developing for APOL1-mediated kidney disease. Furthermore, the company has recently expanded its pipeline. Last month, Vertex Pharmaceuticals announced the acquisition of Crinetics Pharmaceuticals (NASDAQ: CRNX), a smaller biotech, for about $10 billion in cash. Crinetics' portfolio includes Palsonify, a medicine for acromegaly, a rare hormonal disease that can cause bones to get bigger, and may be life-threatening.
Crinetics also has promising pipeline candidates across other hormonal conditions. Vertex estimates that Crinetics' entire portfolio could generate $5 billion in peak sales. It may not be quite that successful, but Vertex Pharmaceuticals is casting a broad net, with multiple candidates across several therapeutic areas and clinical trial phases. The company's diversification efforts should eventually succeed, allowing it to mitigate the risk posed by another drugmaker's potential launch of CF medicines. So, the stock hasn't peaked yet.
Vertex could deliver solid returns over the next five years and beyond as its financial results improve, driven by new launches in CF and elsewhere. Investors should stick with the stock.
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Prosper Junior Bakiny has positions in Vertex Pharmaceuticals. The Motley Fool has positions in and recommends AbbVie, Krystal Biotech, and Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.
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