Investing in biotech stocks isn’t for everyone because the very nature of their business is fraught with risk. As a result, biotech stocks can be highly volatile.
However, some exceptions aren’t nearly as risky. A few are even practically no-brainer picks for long-term investors. Here’s why I think Vertex Pharmaceuticals (VRTX -0.20%) is the ultimate biotech stock to buy with $500 right now.
Financially strong
Many biotechnology companies don’t have approved products on the market, so they don’t generate reliable revenue. From time to time, they must raise additional capital — often through the dilution-causing issuance of new shares. This presents one of the greatest challenges with investing in clinical-stage biotech stocks.
Vertex Pharmaceuticals, though, already has four cystic fibrosis (CF) therapies on the market. It’s also ramping up the commercial launch of Casgevy, a gene-editing therapy that’s a one-time treatment for the rare blood disorders sickle cell disease and transfusion-dependent beta-thalassemia.
The company’s revenue in the first nine months of 2024 totaled $8.1 billion, and Vertex expects to rake in around $10.9 billion in the full year. Sure, the big biotech leader posted a net loss of $1.45 billion in the first three quarters. However, this loss was due to the acquisition of Alpine Immune Sciences, an investment I expect to pay off handsomely.
Vertex usually delivers solid profits. The proof in the pudding is the company’s cash, cash equivalents, and marketable securities of $11.2 billion. This cash stockpile would have been even bigger if Vertex hadn’t used some cash with the Alpine deal and to make stock buybacks.
Promising pipeline
One of the most important factors to consider with biotech stocks is their pipeline potential. How does Vertex’s pipeline look? Exceptionally good, in my opinion.
Vertex is awaiting two U.S. Food and Drug Administration (FDA) approvals over the next eight weeks. The FDA should announce an approval decision on Vertex’s vanzacaftor triple-drug combination in treating CF by Jan. 2, 2025. The agency expects to announce its approval decision on suzetrigine in treating acute pain by Jan. 30, 2025.
I predict both of these drugs will win FDA approval and become huge blockbusters for Vertex. The vanzacaftor triple offers a more convenient dosing (once daily) and is more powerful than Trikafta, the company’s top CF drug that currently generates nearly 93% of total revenue. It also has a much lower royalty burden than Vertex’s other CF drugs, which means it should be more profitable. Suzetrigine is a non-opioid pain therapy that should have significant commercial potential.
The acquisition of Alpine brought povetacicept into Vertex’s pipeline. This drug is in phase 3 testing as a treatment for IgA nephropathy. Vertex is also evaluating povetacicept in phase 2 studies targeting other autoimmune kidney diseases.
On a similar note, inaxaplin is in late-stage clinical testing as a treatment for APOL1-mediated kidney disease (AMKD). This disease affects more patients globally than CF. There are currently no approved therapies for treating the underlying cause of AMKD.
Perhaps the biggest game changers in Vertex’s pipeline are its type 1 diabetes programs. VX-880, which requires the use of immunosuppressants, is in pivotal testing. VX-264, which doesn’t require immunosuppressants, is in phase 1/2 clinical trials. These islet cell therapies hold the potential to cure type 1 diabetes.
Resilient business
Many biotech companies are fragile, and one clinical setback can be devastating. Vertex’s business, though, is remarkably resilient.
The main reason why is that the company’s CF products don’t have any competition. Vertex markets the only approved therapies that treat the underlying cause of CF, and its nearest potential rival is in phase 2 testing. I expect Vertex will dominate the CF market at least through the end of the next decade.
Keith Speights has positions in Vertex Pharmaceuticals. The Motley Fool has positions in and recommends Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.
