Is Vertex Pharmaceuticals' Empire in Trouble?

Over the past 10 years, Vertex Pharmaceuticals (NASDAQ: VRTX) has delivered market-beating returns. The company owes this performance to its dominance in the cystic fibrosis (CF) drug market. Vertex Pharmaceuticals essentially has a monopoly in this area. That's a good thing so long as the biotech can protect its business from new market entrants, but if it fails to do so, the company could encounter significant challenges. Is that where Vertex Pharmaceuticals is headed? Let's find out.

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The CF drug pipeline

Several companies are developing newer CF medicines to compete with Vertex's. The list includes Krystal Biotech, whose candidate, KB407, has performed well in phase 1 studies. KB407 is a gene therapy that targets the underlying causes of CF and helps clear the thick mucus that accumulates in patients' organs while restoring lung function. Importantly, it could work for all CF patients, whereas Vertex Pharmaceuticals' medicines target only those with certain mutations.

Vertex's most important therapy can treat about 95% of CF patients in the U.S. -- the company could lose significant business if a drug like KB407 hits the market. Other biotech companies are also working on treatments to challenge Vertex Pharmaceuticals' dominance. These will make progress in the next five years and perhaps transform the CF drug market.

Is the stock still worth buying?

Developing CF medicines has proved challenging. It isn't for lack of trying that no company has managed to challenge Vertex Pharmaceuticals yet. Could this newer crop of investigational therapies be different? Maybe, but Vertex has raised the bar very high. Meanwhile, the company continues to develop newer medicines for CF. Vertex Pharmaceuticals is working on an mRNA-based treatment that could benefit patients currently ineligible for its therapies.

Further, Vertex Pharmaceuticals knows it is at risk of facing competition in its core market. That's why it is actively looking to diversify its lineup. It has done so over the past three years, with the approval of medicines such as Casgevy, a gene editing therapy for sickle cell disease, and Journavx for acute pain. Vertex should earn even more brand-new approvals in the next few years. The company posted strong phase 3 results for povetacicept, an investigational medicine for IgA nephropathy (a kidney disease), a few weeks ago.

And by year-end, the company plans to announce additional phase 3 results and potentially pursue regulatory approvals for inaxaplin, an investigational treatment for APOL1-mediated kidney disease. It might still be a while before any company actually seriously challenges Vertex in its most important market (key products won't lose patent exclusivity until the late 2030s).

In the meantime, it should continue to deliver strong financial results while successfully diversifying its lineup. So, the biotech remains an attractive stock to buy.

Prosper Junior Bakiny has positions in Vertex Pharmaceuticals. The Motley Fool has positions in and recommends Krystal Biotech and Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.