Except for the last several days, the past 12 months have been pretty good for stocks across the board and especially successful for Vertex Pharmaceuticals (VRTX -1.02%). Shares of the biotech stock surged by 42% during the 12 months ended Aug 5.
Now that it's already risen a great deal, investors are wondering if they've missed the boat on this stock.
Can Vertex Pharmaceuticals stock keep rising in the years ahead or is it too risky following a big run-up? Here's what you should know.
Why Vertex Pharmaceuticals stock is soaring
Vertex's lead drug, Trikafta, is a three-drug combination treatment for cystic fibrosis (CF). Patients born with this rare disorder have malfunctioning sodium channels in their lungs, which results in progressively worsening breathing problems.
Dozens of known mutations cause cystic fibrosis, and Trikafta is highly effective at treating the vast majority. Since there aren't any other companies marketing effective CF treatments, Vertex was able to report first-half sales that rose 9.6% year over year to $5.3 billion.
In addition to its cystic fibrosis franchise, Vertex will begin recording sales of the recently launched treatment Casgevy. This is an autologous cellular therapy developed in partnership with CRISPR Therapeutics for patients with either sickle cell disease or beta thalassemia.
Casgevy is a complicated cellular therapy manufactured in batches of one because they're produced from each patient's stem cells. As such, sales could be limited, but some analysts still expect more than $2 billion annually at its peak.
How Vertex Pharmaceuticals stock could keep climbing
There aren't any serious contenders to Trikafta in late-stage clinical trials and Vertex Pharmaceuticals could extend its lead on its competitors even further. In July, the Food and Drug Administration (FDA) began reviewing an application for a new three-drug tablet that appears even more effective than Trikafta. The agency is expected to announce an approval decision for the new triplet therapy on or before Jan. 2, 2025.
In addition to a new cystic fibrosis treatment, Vertex Pharmaceuticals is advancing an experimental non-opioid pain reliever called suzetrigine. While it wasn't quite as effective as Vicodin, it meaningfully reduced pain for patients who recently underwent abdominal surgery or had a bunion removed from a foot.
Despite the slightly lower effectiveness, physicians will probably feel a lot better about prescribing a non-habit-forming pain reliever. The FDA is reviewing suzetrigine's application and an announcement is expected on or before Jan. 30, 2025.
Vertex's biggest opportunity to date could come from its burgeoning type 1 diabetes program. A single infusion of an off-the-shelf cellular therapy named VX-880 led to the engraftment of new insulin-producing islet cells in 12 patients.
All patients achieved healthy blood sugar levels. For 11 out of the 12, the new islet cells produced enough insulin to reduce or eliminate the regular injections they had relied on.
Treatment with VX-880 requires heavy immunosuppression to keep engrafted islet cells alive. This challenge will limit its uptake if approved, but investors want to keep their eyes on VX-264. This follow-up to VX-880 uses the same islet cells, but wraps them up in an immunoprotective device.
A buy now?
Before you sink any of your hard-earned money into Vertex Pharmaceuticals stock, there are two things to keep in mind. First, it's highly dependent on the continued success of its cystic fibrosis franchise. Second, its stock has been trading for around 12.1 times trailing sales. For comparison, the largest pharmaceutical companies in the U.S., Merck and Pfizer, have been trading at 4.6 and 3 times trailing sales, respectively.
If investors begin to worry Vertex can't continue to report sales growth at a high-single-digit percentage, the stock could get beaten down to a valuation on par with its peers. Investors with a low risk tolerance probably want to keep watching this stock from a safe distance until it pulls back to a single-digit multiple of trailing sales. For most growth-oriented investors, though, this stock is a buy at recent prices.
