Last year, the biotech giant Dr Vertex Pharmaceuticals (VRTX 1.21%) did not disappoint its shareholders. The drugmaker put up an impressive performance that easily outperformed the broader market. But that was last year.
The good news for investors is that the company has developments that could lead to a similarly strong showing in 2023. Even at current levels, Vertex is an excellent biotech stock to buy. Let’s take a look at why the drugmaker is a solid company to invest in right now.
New approvals are closed
Over the past decade, Vertex’s only commercialized drugs target cystic fibrosis (CF), a rare genetic condition that damages patients’ lungs and causes digestive problems. That seems about to change. Last year, the biotech announced it would seek approval for Exa-Cell in the US and Europe, with application packages to be submitted to regulatory authorities in both regions by the end of the first quarter.
Exa-Cell is an investigational treatment for the rare blood disorders, transfusion-dependent beta-thalassemia (TDT), and sickle-cell disease (SCD). Gene-editing therapy may be a one-time curative therapy for these patients who typically do not have as many options. Consider that the average life expectancy of people with SCD is between 42 and 47 years. Patients in the United States spend between $4.2 million and $6.2 million in lifetime costs for treatments that do not relieve their condition.
Enter Exa-Cell, which can prolong and improve the lives of these patients by curing them once and for all. The commercial scope for this therapy could be vast. Vertex will initially target 32,000 patients in the US and Europe. Let’s say the company can treat 50% of this population at a cost of $1 million per course, which is not unusual for gene-editing treatments. And we would assume that insurance companies would cover at least some of that amount.
That rounds up to $16 billion in sales. It is true that Vertex has to share the spoils CRISPR therapeutics, with whom it is working on this project. The former will take 60% of the profits and bear 60% of the costs. Before expenses, Vertex’s revenue from exa-cel could be $9.6 billion. The company’s top line for the trailing-12-month period is $8.7 billion. Exa-cel could get approval by the end of the year.
But there’s more to be excited about with Vertex.
Don’t forget Vertex’s flagship franchise
Vertex’s portfolio of CF products continues to grow. In November, the agency estimated that there are now 88,000 patients with the illness in the United States, Canada, Europe and Australia. In 2021, the number stands at 83,000. And going back to 2019, it was only 75,000 patients. One reason these numbers are increasing is that people with CF are living longer thanks to Vertex’s products.
But many eligible patients have yet to start treatment — more than 20,000, Vertex estimates. This does not include the 5,000 who are not currently eligible for any of Vertex’s therapies; The company is working on a new one to deal with this remaining population. In total, more than 28% of the CF population in Vertex’s target market still needs treatment.
The company can still advance in this space where it has had a monopoly for years. Vertex’s CF franchise and the potential launch of Exa-Cell make it an attractive option, and that’s before we add the rest of the company’s pipeline. The biotech is working on multiple additional therapies for acute and neuropathic pain, type 1 diabetes and more. Vertex estimates a $4 billion potential market opportunity in acute pain alone.
To make the stock even more attractive, Vertex is trading at a forward price-to-earnings (P/E) ratio of just 17.8. That’s down S&P 500Its average is 19.2, though it’s slightly above the biotech industry’s forward P/E of 15.3. But Vertex Pharmaceuticals deserves a premium; The company’s current valuation seems more than fair. Vertex Pharmaceuticals is ideally positioned to deliver market-beating returns again this year, but even if it doesn’t, the company’s long-term prospects are attractive.
Investors who buy shares of Vertex today won’t regret the line.
Prosper Jr. Bekini holds positions at Vertex Pharmaceuticals. The Motley Fool has positions in and recommends CRISPR Therapeutics and Vertex Pharmaceuticals. Motley Fool has a revealing policy.