Vertex Pharmaceuticals' Rally Has a New Engine -- and Wall Street Thinks the Best Is Still Ahead

Vertex Pharmaceuticals (NASDAQ: VRTX) has dominated the cystic fibrosis (CF) drug market -- where it has a virtual monopoly -- since it launched its first medicine in this field in 2012. As a result, it has performed extremely well over this period. However, the bears argue that because the biotech generates almost all of its sales from this therapeutic area, its business would crumble once it faces competition. And many thought that day was getting closer, as Sionna Therapeutics (NASDAQ: SION) seemed to be developing potentially better CF drugs. But recent developments have proved once again why Vertex won't easily lose its lead in its core market. Here's what investors need to know.

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Sionna's leading candidate flops

First, some background on CF. The disease is caused by mutations in the CFTR gene, which produces a defective CFTR protein. Vertex Pharmaceuticals' medicines can significantly improve CFTR function, but even with these drugs, most patients don't achieve normal CFTR protein function. Sionna Therapeutics is trying to change that. The company's medicines could stabilize CFTR function in most patients, at least that's what the company argues. But Sionna recently hit a roadblock.

The company reported phase 2 clinical trial results for one of its leading candidates, SION-719. In this study, SION-719 was being investigated as a potential add-on treatment to Vertex's Trikafta. Unfortunately, SION-719 did not achieve its activity endpoint in the trial, sending Sionna Therapeutics' stock down by about 90% overnight. This episode made at least some Wall Street analysts much more bullish on Vertex's outlook.

What this means for Vertex's prospects

Sionna Therapeutics isn't giving up. The company has other pipeline candidates it is still working on. However, this setback once again highlights how challenging it is to develop novel, effective therapies for CF. Sionna Therapeutics isn't the first to fail. AbbVie (NYSE: ABBV), a pharmaceutical leader, abandoned its CF goals several years ago after multiple failures. It seems Vertex Pharmaceuticals is the only one that has cracked the code. After launching its first CF product in 2012, it earned approval for several others.

The company's latest launch in this field, Alyftrek, can be taken once daily -- versus twice a day for the one before that. And Vertex's Trikafta and Alyftrek can now target about 95% of CF patients, whereas some of the therapies it had launched before targeted a much smaller subset of this population.

In other words, Vertex Pharmaceuticals has significantly improved its CF portfolio over time, thereby expanding its addressable market and achieving better patient outcomes. The company has had setbacks in this field, too. But it has had enough successes to continue launching new drugs and post strong financial results. There are still other biotech companies developing potential competing CF medicines, but don't hold your breath for anyone to successfully challenge Vertex anytime soon.

So, the company could continue to deliver consistent financial results from this business until its most important drugs lose patent exclusivity in the late 2030s. Vertex Pharmaceuticals has also launched newer medicines in other fields. For instance, the company's Casgevy, a gene editing medicine for two rare blood diseases -- sickle cell disease (SCD) and transfusion-dependent beta-thalassemia (TDT) -- first earned approval in 2023. Vertex Pharmaceuticals developed this drug with CRISPR Therapeutics (NASDAQ: CRSP). Casgevy hasn't generated much in sales yet, partly because gene-editing therapies are expensive and complicated to administer.

However, Vertex has ramped up third-party coverage for it, and it recently earned a label expansion for Casgevy for patients as young as two. This regulatory win meaningfully expands the medicine's addressable market by allowing it to treat patients before they have had substantial health problems due to TDT and SCD. Vertex's Journavx, another relatively new launch, could also eventually be highly successful as it gives patients a non-opioid option to treat acute pain. Lastly, Vertex should earn additional brand-new approvals in the next few years, further improving its portfolio. The company's dominance in CF and diversification efforts make the stock an attractive pick.

Prosper Junior Bakiny has positions in Vertex Pharmaceuticals. The Motley Fool has positions in and recommends AbbVie and Vertex Pharmaceuticals. The Motley Fool recommends CRISPR Therapeutics. The Motley Fool has a disclosure policy.