3 reasons to buy Vertex Pharmaceuticals stock like there’s no tomorrow

Most investors are happy if a stock doubles in four or five years. Vertex Pharmaceuticals (VRTX 0.74%) shareholders should be ecstatic. Its share price has skyrocketed by 140% in the recent period three years.

But the impressive run for this biotech stock is far from over. Here are three reasons to buy Vertex Pharmaceuticals stock like there’s no tomorrow.

1. Monopoly power

I can’t think of many companies with a more resilient business than Vertex. The drugmaker should be able to rack up cash quarter after quarter, regardless of what happens to the economy. It’s easy to do when you enjoy a monopoly on treating a potentially life-threatening genetic disease.

Vertex markets the only drugs that target the underlying cause of cystic fibrosis (CF). Tens of thousands of CF patients around the world rely on Kalydeco, Orkambi, Symdeko and Trikafta to live a normal life.

This CF monopoly offered Vertex an enviable financial position. The company expects revenue of about $10.75 billion in 2024. Its cash pile still stands at $5.8 billion after it recently acquired Alpine Immune Sciences for $4.9 billion.

And Vertex’s CF monopoly could soon become even stronger. The US Food and Drug Administration (FDA) is scheduled to announce its approval decision for the company’s vanzacaftor triple drug combination by January 2, 2025. If approved, this combination could become the most potent and profitable CF therapy of at Vertex so far.

2. More potential hits down the road

Vertex may have several potential blockbuster drugs outside of CF. The former has already won FDA and EU approval. Commercialization of gene editing therapy Casgevy as a unique treatment for sickle cell disease and transfusion-dependent beta-thalassemia is in the early stages.

The company is awaiting FDA approval for suzetrigine in the treatment of acute pain. Suzetrigine addresses a major unmet need in a multi-billion dollar market. It is not addictive like opioids and is more effective than anti-inflammatory and analgesic drugs.

Vertex’s pipeline includes two other promising late-stage programs. Inaxaplin targets APOL1-mediated kidney disease (AMKD). There are currently no approved treatments for the underlying cause of AMKD, which affects more patients than CF. The Alpine acquisition added povetacicept to Vertex’s quiver. Vertex sees the drug as a “pipeline-within-a-product,” with an initial focus on IgA nephropathy, an autoimmune kidney disease that affects about 130,000 patients in the US.

The company is also targeting other indications in earlier phase clinical trials. Vertex programs that focus on type 1 diabetes could have the biggest impact. Its pipeline includes two experimental islet cell therapies in development that hold the potential to cure type 1 diabetes.

3. An attractive valuation

Vertex’s CF monopoly and potential hits down the road don’t automatically make the stock a great pick. Investors also need to consider valuation. The good news is that the Vertex looks attractive on this front. You have to dig a little for this good news though.

The Alpine acquisition sent Vertex’s bottom line into negative territory. This makes valuation multiples based on earnings unreliable, if not completely useless.

However, one valuation metric is particularly useful for Vertex: its price-to-earnings-growth (PEG) ratio with five-year growth projections. This report takes into account the potential for the company’s products awaiting approvals and its late-stage pipeline. A PEG ratio of less than 1.0 is viewed as an attractive valuation. Vertex’s PEG ratio is 0.78.