Key Points
Vertex Pharmaceuticals' moat in cystic fibrosis remains nearly impregnable.
The company’s diversification efforts are slowly ramping up, and more is to come.
Vertex Pharmaceuticals (NASDAQ: VRTX), a biotech leader, has outperformed the broader equity market over the past five years. However, some investors are skeptical of the drugmaker's future. They worry about Vertex's lack of diversification and its somewhat mixed efforts to launch new products beyond its core therapeutic area. Could Vertex's challenges lead to a subpar performance over the next five years? Not in my view. In fact, it could be one of the best biotech stocks to own through 2031. Here is why.
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Excellent financial results
Vertex Pharmaceuticals remains the undisputed leader in the cystic fibrosis (CF) drug market. And the company's products in this area continue to drive solid sales and earnings growth. In the third quarter, the drugmaker's revenue grew 12% year over year to $3.44 billion. Vertex's CF products accounted for $3.3 billion of its total revenue. Trikafta, a CF medicine first approved in 2019, remains its top-selling product, but the newer Alyftrek, which has a more convenient once-daily dosing, is stealing patients away from Trikafta.
Third-quarter sales of Alyftrek grew almost 186% year over year to $705.8 million, while Trikafta's revenue dropped 8% year over year to $2.4 billion. The great news is that the prospects of a challenger taking market share away from Vertex in CF took a major hit earlier this year. Sionna Therapeutics (NASDAQ: SION), which focuses on developing CF drugs, announced that one of its leading candidates performed poorly in a Phase 2a clinical trial.
Meanwhile, Vertex won't face patent cliffs for its most important CF drugs, Trikafta and Alyftrek, within the next five years. Those will come in the late 2030s. So, the CF franchise should remain a decent growth driver for the company over the medium term. However, Vertex Pharmaceuticals will also increasingly look elsewhere for growth. The company's newer non-CF approvals include Casgevy, a gene-editing medicine for sickle cell disease (SCD) and transfusion-dependent beta-thalassemia (TDT), as well as Journavx, a drug for acute pain. Neither is contributing much to the top line yet, but they both boast attractive potential.
In the third quarter, Vertex's Casgevy sales grew almost 487% year over year to $99.2 million. Gene editing therapies are expensive -- which makes third-party adoption difficult -- and complex to administer. Vertex and its partner, CRISPR Therapeutics (NASDAQ: CRSP), have spent the past few years since Casgevy's approval in 2023 getting health insurance companies on board and establishing a network of qualified treatment centers to treat eligible patients.
And in July, Casgevy earned a label expansion in the U.S. for SCD and TDT patients as young as two, which added 5,500 people to its addressable market. Considering the medicine costs $2.2 million per treatment course in the country, that's a meaningful expansion. So, Casgevy should experience rapid sales growth over the next five years. Journavx could also make significant headway in the market for acute pain where there is a need for non-opioid options.
The spending could pay off
Vertex's diversification efforts are only getting started. The company is currently awaiting approval for povetacicept, a potential medicine for IgA nephropathy (a kidney disease). The U.S. Food and Drug Administration could approve povetacicept by the end of this month. And the medicine could later earn label expansions across other conditions.
Vertex is also developing products such as inaxaplin, which is in Phase 3 studies for APOL1-mediated kidney disease, and VX-407, which is undergoing Phase 2 trials for autosomal dominant polycystic kidney disease. Further, a recent approval helped expand Vertex's lineup and pipeline. In September, the company closed the $10 billion buyout of Crinetics Pharmaceuticals, a biotech that specializes in developing medicines for endocrine diseases.
This acquisition added Palsonify, a drug approved for acromegaly, to Vertex's portfolio. Acromegaly is a rare disease that leads to excess growth hormone and enlarged bones. Left untreated, it can be fatal. Palsonify adds an option for patients for whom surgery isn't an option or who did not respond well to surgery. Vertex also added atumelnant, an investigational drug for congenital adrenal hyperplasia (a rare hormonal condition), to its Phase 3 pipeline.
Between Vertex's internally developed candidates and the recent acquisition, the company has a deep pipeline that should lead to new approvals over the next few years. And that's on top of a lineup of approved drugs that is already performing well and should continue doing so. This highlights why Vertex could be an excellent biotech stock to own through 2031.
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.