Could 1 Tiny Biotech Topple Vertex Pharmaceuticals' Cystic Fibrosis Empire?

Vertex Pharmaceuticals (NASDAQ: VRTX) has dominated the market for cystic fibrosis (CF) medicines since it earned approval for its first drug in this niche in 2012. To this day, most of the company's revenue comes from its CF franchise. In the second quarter, Vertex posted $3.33 billion in revenue, representing a 12% year-over-year increase. CF-related sales were $3.2 billion. If Vertex faces stiff competition in this field, the company will lose some of its pricing power, resulting in significantly lower revenue and earnings. And many analysts fear that may happen soon, given the progress Sionna Therapeutics (NASDAQ: SION), a clinical-stage biotech, is making. Should investors be worried about Vertex Pharmaceuticals' prospects?

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David vs. Goliath

Vertex Pharmaceuticals is worth almost $123 billion, compared to Sionna's $2.2 billion. But the smaller biotech has made it its mission to disrupt the CF drug market. Sionna focuses entirely on this area. To understand why many people are taking Sionna seriously, let's first review what causes CF. A misfolded CFTR protein -- which normally helps keep mucus in the lungs thin -- is behind this rare disease. It leads to thick, sticky mucus that clogs the airways, disrupts breathing, and traps germs and bacteria, contributing to recurrent infections.

Vertex Pharmaceuticals' products work by significantly improving the shape and function of the CFTR protein, leading to much improved symptoms. However, the underlying genetic mutation remains. That's where Sionna Therapeutics comes in. The company argues that its approach could help restore the CFTR protein's normal function, something Vertex's medicines do not achieve for most people with CF. If Sionna Therapeutics can be successful, we are looking at a large addressable market. Vertex generates over $12 billion in annual revenue, and many CF patients will switch to Sionna's drugs if they are as effective as it claims. So, investors are right to be worried about Vertex's future.

Should you forget Vertex?

Before selling Vertex's shares and putting your money in Sionna Therapeutics, there are several things to remember. First, this won't be the first time a company tries to challenge Vertex's dominance in CF. The list of drugmakers that have sought to dip their toes in this market even includes pharmaceutical giants like AbbVie. But so far, they have all failed, and Vertex remains the only game in town.

That's no guarantee that Sionna will also fall short, but developing CF medicines has proved incredibly challenging. That's an important factor to remember. Second, Sionna Therapeutics' most advanced programs are still in phase 2 studies. It will be a while before the company can prove in late-stage clinical trials that its approach is as effective as it claims. And that's if it gets that far. There is always the possibility that Sionna will experience clinical setbacks along the way.

Third, Vertex Pharmaceuticals has worked hard to diversify its portfolio. Its success has been somewhat limited so far, in fairness. The company's approved lineup now features Casgevy, a gene editing medicine for two rare blood disorders, and Journavx, a treatment for acute pain. Neither is generating meaningful revenue yet, but their sales should ramp up over the next couple of years. Further, Vertex should earn approval for other candidates that may perform better.

The company submitted an application to U.S. regulators for povetacicept, an investigational drug for IgA nephropathy (a kidney disease). It could be approved by the end of November. Vertex boasts several other pipeline candidates that could make a dent in its financial results down the line. It recently announced the $10 billion acquisition of Crinetics Pharmaceuticals (NASDAQ: CRNX), which will add an approved product to its portfolio and a promising pipeline candidate being developed to treat a rare genetic condition called congenital adrenal hyperplasia.

This will help diversify Vertex's business. Besides, the company is still developing newer CF drugs. What does all this mean? Sionna Therapeutics' work is a risk to Vertex's future. However, the leader in the CF market remains so for now, boasts a deep pipeline, and should have a much broader, more diversified portfolio within a few years. Vertex Pharmaceuticals remains an attractive stock to buy and hold for the long term.

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