Vertex Pharmaceuticals (NASDAQ: VRTX) is trading near a record high after climbing about 20% so far this year, and delivering a triple-digit gain over three years. So, you may be a bit hesitant about buying shares of or reinforcing your position in this high-flying biotech company. But just because a stock has climbed a lot, and trades around its highest level ever, doesn't mean it's overpriced or has reached its full potential.
This biotech company, in spite of its top performance, trades for only 28 times forward earnings estimates, a very reasonable level considering its current earnings growth as well as its long-term potential. And Vertex's latest news indicates its growth opportunities are expanding, so both earnings and the stock should head higher over time. Let's check out three specific reasons to buy Vertex stock like there's no tomorrow.
Image source: Getty Images.
1. Extending its leadership in a billion-dollar business
Vertex is already the global leader in the treatment of cystic fibrosis (CF), with its portfolio of drugs bringing in $9.8 billion in sales last year. The company sells therapies that correct the malfunctioning protein called cystic fibrosis transmembrane conductance regulator (CFTR), which causes symptoms of the disease.
The company's biggest blockbuster, Trikafta, won approval in 2019 and has improved the lives of patients worldwide. Now, though, Vertex may be on the verge of winning a nod for a CFTR modulator that's even better than this top seller. The biotech recently submitted a candidate known as "the vanza triple" to regulators, and their decision is set for on or before Jan. 2, 2025.
The vanza triple beats Trikafta in efficacy, as well as convenience: It's taken once a day, unlike the twice-daily Trikafta. This potential new drug could attract even more patients to Vertex, and also extend its intellectual property rights farther into the future.
2. A potentially game-changing drug right around the corner
Vertex today is known for its CF expertise, but the company has been working very hard to show investors it can excel in other areas too. Its first victory came late last year with the approval of the blood-disorders gene therapy, Casgevy.
Now Vertex is on the verge of expanding into yet another area, and one that could bring in blockbuster revenue over time. The company recently started a rolling regulatory submission for suzetrigine (previously known as VX-548), a candidate to treat moderate-to-severe acute pain. This could be a huge market for Vertex, considering the limited number of options patients have today: mainly over-the-counter painkillers that lack efficacy, or prescription opioids that come with the risk of addiction.
Vertex's non-opioid candidate could fill the gap, and the company has the solid commercial infrastructure to make its product known within hospitals, where much of the prescribing for pain medicine happens. About 80 million patients receive a prescription for a drug to treat moderate-to-severe pain every year in the U.S., according to Vertex.
So, if all goes smoothly during regulatory review, Vertex could soon release a drug that will be a game changer for patients and the company.
3. Financial strength that should keep growth going
Finally, the third reason to scoop up shares of Vertex right now is that it has the financial situation to invest in its pipeline and the commercialization of new products, and therefore keep growth going.
Today, Vertex's return on invested capital (ROIC) is lower than it was in the past, due to recent investments in Casgevy and the candidates I've mentioned above; however, these investments should bear fruit in the coming months and years. And the general trend has been a rise in ROIC and free cash flow over the long term:
VRTX Free Cash Flow data by YCharts.
On top of this, Vertex has a huge amount of cash -- $14.6 billion at the end of the first quarter -- thanks to solid revenue growth. These elements should offer us confidence about Vertex's ability to generate growth well into the future.
These three reasons, along with a reasonable valuation, mean Vertex makes a terrific buy right now -- and one that could add significant value to your portfolio over time.
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Adria Cimino has positions in Vertex Pharmaceuticals. The Motley Fool has positions in and recommends Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
