VERTEX PHARMACEUTICALS: A BIG PHARMA IS BORN?

Long known as an innovator in the world of Cystic Fibrosis, Vertex Pharmaceuticals ($VRTX) is on the verge of launching  a number of potential blockbuster treatments for a range of new disease states. Is Vertex poised to become one of tomorrow’s pharmaceutical giants? 

By Joshua Mazher, Biotech Securities Analyst 

The life of a person with cystic fibrosis (CF) is often one full of several complications. Whether that be persistent coughing, constant wheezing, or several trips to the doctor’s office, CF is a miserable hand to be dealt to anyone. Even though the disease itself is rare relative to other diseases in America, it is one of the most commonly inherited disorders, with close to 40,000 people dealing with it in the country.

The keyword here is inherited. Anytime we are dealing with inheritance, the root of the problem can be whittled down to one thing: Genetics. The process of dealing with diseases that are passed down through genes can be complicated, to say the least. However, modern-day advances in molecular biology have led some of the world’s best scientists to discover the specific mutations that are at play when it comes to certain diseases passed down through generations. In the case of CF, the root cause boils down to a gene mutation called cystic fibrosis transmembrane conductance regulator (CFTR). In layman’s terms, it is a mutation that causes a person to develop unusually thick and sticky mucus, leading to a variety of complications mentioned at the beginning of this piece.

So CF exists… and? Fortunately, CF patients can rest assured that groundbreaking developments in CF medications have helped thousands find workable treatments to significantly help reduce the symptoms. A disease that was a certain death sentence just two decades ago is now eminently treatable. I’d like to shift our attention to one of the pioneers in developing effective treatments for CF, Vertex.

Vertex Pharmaceuticals: Hungry for Innovation and Growth 

Vertex ($VRTX) is a biopharmaceutical company that was founded on developing treatments for serious diseases. Vertex’s claim to fame lies in its groundbreaking pipeline for treating CF. The notable stages in development for treating CF are Ivacaftor, Lumacaftor, Tezacaftor, and Trikafta. These culminated into medicines that have been invaluable in helping CF patients across the world, while also forcing other biopharmaceutical companies to take notice of Vertex’s prowess in developing treatments related to molecular biology and gene therapy. These therapies have transformed Vertex into a highly lucrative, cash generating machine.

 As of 2023, Vertex’s pipeline of new medications is quite extensive, with CF being one of several other diseases that are in the company’s sights. Recently, Vertex has once again put the biotech world on notice as its sickle cell disease pipeline is making great strides. Gene editing therapy has long been one of Vertex’s primary partnerships for making critical breakthroughs in drug development, however, the company’s recent expenditure takes this relationship to a whole new level. In March of this year, Vertex made one of the boldest and most opportunistic moves since its founding– a partnership with world-renowned CRISPR Therapeutics costing a substantial 100 million dollars.

The specific therapy that is being provided to Vertex from CRISPR is a gene-edited therapy called Exa-cel. Without boring you too much with the specifics, this advanced therapy can be used to edit a person’s hematopoietic stem cells. These cells are responsible for producing fetal hemoglobin, which can typically only be produced during the infancy stages of one’s life. However, by editing the gene responsible for the production of hemoglobin, Exa-cel provides a promising solution by simply tricking the body into producing fetal hemoglobin in adults. Exa-cel marks the start of a potential Vertex-driven reign over the future of an ample innovation pipeline. In the cut-throat world of first-come-first-serve, timing is everything. Life may not be considered a rat race, however being approved for the next groundbreaking discovery in a major biopharmaceutical space certainly is. The timeline behind the stages of drug development is critical to determining which companies can profit the most from innovation. Vertex is leading the race to commercialize a cure for sickle cell disease. 

While initially the deal between Vertex and CRISPR was made on the premise of Type I diabetes treatments, the company quickly steered its sights on sickle cell disease, one of the more deadly/life-threatening diseases known to mankind. According to Mayo Clinic, sickle cell disease (otherwise known as sickle cell anemia) affects the red blood cells in the human body. Healthy blood cells should be round and flexible, however, those affected by the disease produce “sickle” or moon-shaped blood cells that are more rigid, This rigidity causes a lack of blood flow throughout the body, resulting in symptoms such as fatigue, pain, and delayed growth. However, thanks to the recent partnership with CRISPR Therapeutics, Vertex believes that it is on the brink of a breakthrough in a cost-effective and efficient drug treatment. Needless to say, Vertex isn’t the only company to attempt to derive a treatment for sickle cell.

Companies such as Bluebird Bio and Novartis are amongst several biopharmaceuticals that are attempting to get their respective sickle cell disease treatments approved. However, the leader of the pack is still Vertex as its sickle cell mission awaiting its final stages of approval. Specifically, Vertex is in the process of applying for a “BLA” or Biologics License Application. According to the FDA, BLA is, “a request for permission to introduce, or deliver for introduction, a biologic product into interstate commerce”. Meanwhile, most other competitors are still in the preliminary phases of approval. (This link shows the steps in the drug approval process). Based on how far along each company is on their respective sickle cell pipelines, Vertex is the clear favorite to launch their medicine into the market first, indicating a surge of profit heading their way.

As is the general theme of bio pharmacy overall, the world of biotech is full of stiff and unrelenting competition. So being ahead of the curve is paramount to the success of any up-and-coming bio company. Trying to upend biopharmaceutical giants such as Pfizer ($PFE) and Merck & Co. ($MRK) is a steep mountain to climb for any relatively new company like Vertex. For starters, let’s compare the numbers of Pfizer and Merck. Pfizer has a market cap of 226.15 billion USD with a P/E ratio of 7.89. Meanwhile, Merck has a market cap of 277.39 billion USD with a P/E ratio of 22.33. Right out of the gate, these numbers are hard to compete with for any company, much less those that are still in their infantile states. With a significant and positive cash flow statement alongside a relatively low P/E ratio, Pfizer’s history of continually churning out new and improved drug products makes it a titan in the industry. The same can be said about Merck, which was listed as having a net income of 14.53 billion in the past year alone. The only tangible way for a smaller-scale company to crack into the market and see exponentially growing dividends is by having an extensive pipeline with a history of fast-growing innovation that can convince investors to opt-in before their breakthrough… Sound familiar? Let’s reexamine Vertex again, shall we?

First, let’s look at the total market capitalization of Vertex on the stock market. As of the publishing of this article, Vertex is valued at approximately 88.52 billion USD with a P/E ratio of 27.38. While the numbers don’t necessarily stack up to Pfizer and Merck and Co., they are certainly good enough to hold their own in the market in general. With a relatively high capitalization of 88 and a half billion dollars, Vertex has a lot of room to spare in terms of innovative expenditures. As we’ve already discussed, they recently spent a fair penny in partnering with CRISPR, showing that they aren’t afraid to use their resources given the opportunity to be the first on a fast track toward a revolutionary new product like a cure for sickle cell disease. 

For any investors that believe that Vertex might be biting off a little more than it can chew, the numbers from the past year don’t lie. As of their latest quarterly report, Vertex holds $10.4 billion in cash, with no debt. As we’ve seen from Vertex already, it’s a company that isn’t afraid to stack the chips and aggressively opt into anything that helps them innovate. With the backing that they already have, as well as their general reputation of being one of the most efficient biotech innovators in the world, it is only a matter of time before their stock price begins to soar. It’s important to also mention Vertex’s growing pipeline. During its early stages after being founded in 1989, Vertex was known as a “One Disease State” company due to its solitary focus on treating cystic fibrosis. Even though CF was a great success for the company, investors noted the lack of other pipeline drugs compared to other more established brands like Pfizer. However, this isn’t the case in 2023. Vertex, as any highly prospective bio company would, has begun to stretch its wings. When reexamining its pipeline, we can see that Vertex already has quite a few medicines at or approaching their third phase of approval. Whether it be pain, sickle cell disease, or beta thalassemia, Vertex’s empire is only beginning to show its true potential. While of course, Vertex still has a lot of work to do to catch up with the established Big Pharma giants like Pfizer, their historical footprint in the treatment of diseases like cystic fibrosis and sickle cell shows that it has the potential to match the diversification (and larger market capitalization) of these Big Pharma titans, eventually. 

Pivoting back to consumer expenditure, another aspect to take into consideration is the effectiveness of the medications that Vertex can provide. Vertex’s revolutionary sickle cell disease pipeline is almost ready to hit the markets, and drug cost experts predict that the medicine produced will be cost-effective for most patients. While the price is listed at $1.93 million, patients and payors can be assured that it is a one-time cure. This is really where Vertex tends to stand out. Most other competitors will sell drugs, however, they must be taken throughout life. The modern-day paradigm for health-related drugs is effectiveness combined with convenience. Though the price tag of 1.9 million dollars is certainly hefty, it is a good deal because patients won’t have to consistently take it for years upon years. Of course, this price is set at face value, and the next step in Vertex’s path is the business negotiation side of things. Though the process can seem arduous at times, investors can rest assured that the drug will hit the market sooner rather than later and will have a huge impact on the future of pharmaceuticals. Overall, the ultimatum of any successful drug is if it works, and if so, how well does it work? It’s pretty safe to say that Vertex’s pipelines do work, and will work financially as well as clinically. If you are looking to expand your portfolio and opt into a company that advances innovation while staying one step ahead of the curve, look no further than Vertex.