Vertex Pharmaceuticals (VRTX 0.81%) didn't exactly put smiles on investors' faces in recent times. The biotech company's shares sank in the fall of 2020 after a candidate failed in clinical trials. And they spent the following year in the doldrums -- even as the company reported billions of dollars in revenue and profit.
But things may be looking up for Vertex and its investors. The stock may be on its way to full recovery and additional gains. Vertex has climbed 15% since the start of the year -- even as the market, on the whole, slipped. That's after an increase of nearly 22% in the last three months of 2021.
Could this movement last? Let's take a closer look.
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$7.6 billion in revenue
First, a bit of background on Vertex. The company is the leader in the cystic fibrosis (CF) treatment market. It makes drugs that restore proper function of a faulty protein involved in the CF-disease process.
Vertex's therapies have the ability to treat 90% of CF patients. The company's top drug is Trikafta. It generated $5.7 billion in revenue last year. And Vertex's four CF treatments brought in a total of $7.6 billion in revenue, helping the company to deliver $2.3 billion in profit.
Investors' biggest concern about Vertex is this great dependence on the CF business. And that's why, when a non-CF candidate failed in clinical trials, the shares began their downward spiral.
Here, it's important to keep in mind two things. First, Vertex's CF leadership and blockbuster revenue are far from over. The company has said it expects to hold its position until at least the late 2030s.
Vertex doesn't even have to worry too much about competition for Trikafta in the coming years because the potential treatment that may unseat Trikafta is being developed by -- guess who -- Vertex. The company is now enrolling patients in a phase 3 trial of this once-daily triple-combination candidate.
Before we move away from the subject of CF, here's one more important detail. Vertex is working with mRNA superstar Moderna on a messenger RNA-based candidate to treat the 10% of patients who can't benefit from Vertex's current therapies. Vertex even said the partners made a "significant breakthrough" in delivery of such a candidate to human bronchial epithelial cells in vitro. The partners plan on asking regulators this year to authorize clinical trials.
Close to the finish line
All of this is great. For some investors, though, it still doesn't lift the concern about Vertex's dependence on one therapeutic area. But the following point might.
Vertex is making progress with its investigational gene-editing treatment for blood disorders. We've known about Vertex's work on the candidate along with partner CRISPR Therapeutics for quite some time. So why is this lifting the stock now?
Vertex is getting close to the finish line. The company has completed enrollment in its phase 3 trial and aims to file for regulatory approval by the end of the year.
CTX001 could be a major product for Vertex. It's designed as a one-time curative treatment. And it would be entering two markets -- sickle cell disease and beta thalassemia -- where treatment options are limited. Vertex said in its earnings call last month that the potential treatment represents a "multibillion-dollar opportunity."
But CTX001 isn't the only non-CF program that may reshape Vertex's future. The company is set to start a phase 3 trial for a severe kidney disorder called APOL1-mediated kidney disease. And Vertex may be on its way to something big with its work on a potential functional cure for type 1 diabetes. Vertex recently reported positive data from treatment of a first patient in a phase 1/2 study.
A reasonable price
Vertex's valuation has climbed in recent months, but it's still much lower than it was prior to its big 2020 share decline. Today, it trades at 28 times trailing-12-month earnings. That's compared to about 50 at the start of 2020. Considering Vertex's current earnings and potential products ahead, today's price is still very reasonable.
So let's get back to our question. Is Vertex making a comeback?
It's impossible to predict what the market will do at any given time, but we can say this: There are plenty of solid reasons supporting Vertex's share gains in the past few months. Right now, the market's focus is on CTX001. If Vertex continues to deliver positive data and make progress as planned, investors won't be disappointed. And it's very possible this once beaten-down biotech stock will soar.
